FW: RHB FIC Credit Market Update - 17/4/14

17 April 2014

Credit Market Update

Weakness in MYR and APAC Credits; DanaInfra Printed MYR2.9bn of Bonds

MALAYSIA

¨      MYR flows rose on GREs, yields climbed higher. Activities in the MYR space were dominated by government-related names with some selling interest. Sentiment was rather weak amid Ukraine geopolitical headlines as investors retreated towards ‘safe haven’ assets yesterday; MGS volume halved amid sideway trading alongside selling seen in the corporate bond space (total volume: MYR389m; previous: MYR344m). In the secondary market, DanaInfra 10/23 traded higher, with yields 5bps down to 4.54%, realigning with its new 10/24 paper which was printed at 4.55%. The new 15y (5.03%) and 20y (5.25%) papers could provide 13bps and 12bps pickup respectively, relative to its existing 10/28 (at 4.90%) and 10/33 (at 5.09%).

¨      DanaInfra extended duration to 30y on new government-guaranteed issuances. DanaInfra printed a total of MYR2.9bn at 4.40-5.51% for maturities ranging from 7y to 30y. The 6-tranche deal consists of: i) MYR500m 7y at 4.40%; ii) MYR500m 10y at 4.55%; iii) MYR500m 15y at 5.03%; iv) MYR500m 20y at 5.25%; v) MYR500m 25y at 5.38%; and vi) MYR400m 30y at 5.51%. ** Our view: Demand was strong at the shorter-end (7-10y) as they were issued at the narrower end of the initial price guidance, while the latter’s pricing at 4.55% also led its existing 10/23 to a lower yield of 4.54% (-5bps) yesterday. This contrasted lower demand on 15-30y issuances partly mitigated by issuing at the wider end of initial price guidance and at higher yields than existing bonds in a bid to attract investors; its 15y paper printed at 5.03% versus existing 10/28 (4.90%); and 20y at 5.25% versus existing 10/33 (5.09%).

REGIONAL

¨      USD APAC yields widened across board; USTs stayed broadly unchanged. JACI Composite rose 0.6bps to 262.8bps and was mirrored by the IG and HY which widened by a similar 0.6-0.7bps. Yields on Chinese USD papers were higher, spearheaded by papers such as TONICI 11/18 (+c.6bps to 3.531%), SWIRE 8/19 (+c.5bps to 3.045%) and SUNHUN 11/20 (+c.5bps to 3.591%). The same upward trend in yields was seen in Hong Kong on names like SWIPRO2 3/20 and BCHINA 2/20. Singapore saw trades on popular names like CAPITA 3/18 and CAPITA 4/15 which rose c.7-11bps and CLFCAP1 (+c.5bps to 1.991%). Meanwhile, risk sentiment as measured by the iTraxx AxJ rose to 0.5bps to 122.8. The USTs stayed virtually unchanged as of yesterday at 2.63% as Yellen commented that the Fed will be supportive of recovery.

¨      Bank of Communications (Macau Branch) issued USD500m BOCOM 4/19 (NR/A-/A) at 3.365% (T+175bps), comfortably inside initial price guidance of T+200bps. A Reg S USD500m POLYRE 4/19 (BBB-/Baa3/BBB+) was issued at 5.25% (T+375) by Poly Real Estate Group. The market is expected to be relatively quiet ahead of the Good Friday/ Easter Sunday holidays this weekend.

TRADE IDEA

¨      MYR: Dislocation of BGSM 12/22 versus BGSM curve and AA3 space. In the longer-dated double-A space, BGSM 12/22 (AA3/sta) still looks interesting at 5.37% yield (last traded on 17-Mar) since our call on 26-Mar. Investors with an appetite for telco exposure could find value along the longer-end of BGSM’s curve, with 12/22 most appealing at 8-18bps of pick-up value (fair value: 5.19-5.29%) versus BGSM’s curve and our proprietary AA3 curve. Further, its narrow spread of 4bps with its 12/23 paper (last traded at 5.42% on 18-Mar) does not seem to account sufficiently for 1y differential. Maxis, a leading telco operator, has a strong business profile and robust credit profile, reflected by strong profitability (4Q13 EBITDA margin at 47.5%; industry average: 45.7%), commendable liquidity (CFO-to-Debt ratio: 0.46x) and manageable gearing levels (debt/EBITDA: 1.66x; net gearing ratio: 1.18x).

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