FW: RHB FIC Credit Market Update - 3/4/14

3 April 2014

Credit Market Update

MYR Credit Flows Up; Interest in MCIL and IBK; APAC Spreads Narrower as UST Rates Climb and HY Gains

MALAYSIA

¨      MYR flows higher on MCIL and IBK trades. Yields generally rose on corporate papers as investors may be making way for the active primary market. Total volume transacted yesterday rose to MYR326m (previous: MYR219m) after remaining below MYR300m for 3 sessions; while flows on the MGS more than halved to MYR1.2bn (previous: MYR2.8bn). Trades were mostly on double-A papers and some government-related names across broad durations. Newly-issued Media Chinese International Limited (MCIL) 2/17 gained 1bp to 4.37% yesterday, having traded 21bps inside its issuance level of 4.58%. Meanwhile, IBK 4/14 saw yield climbing 10bps on the back of MYR60m while AmBank Senior Notes 3/15 similarly jumped 8bps in yield to 3.80%.

¨      Westports printed 4-tranche sukuk, Maybank Islamic eyes MYR1.5bn sub-debt. Maybank Islamic (AA1) is eyeing MYR1.5bn sub-debt with maturity of 4/24c19 at 4.75%, which would appear 15bps premium to Maybank’s MYR1.6bn 4.90% 1/24c sub-debt (AA1) issued in January. In the financial space, we expect RHB Bank to tap the primary market following RAM’s assignment of AA2 and AA3 ratings to its senior and subordinated notes respectively. Meanwhile, Westports Malaysia (AA+) printed a total of MYR250m of 7-10y at 4.60-4.85% under its MYR2.0bn Sukuk Musyarakah programme. The 4-tranche deal consists of: i) MYR50m 7y at 4.60% (MGS+c.58bps); ii) MYR75m 8y at 4.68% (MGS+c.59bps); iii) MYR75m 9y at 4.75% (MGS+c.74bps); and iv) MYR50m 10y at 4.85% (MGS+c.72bps).

REGIONAL

¨      APAC spreads remain on tightening course as UST rates climb: Yesterday’s JACI Composite reading registered 2.2bps lower at 254.5bps, as the HYs continues to outperform at 493.3bps (- 5.8bps) compared to IGs at 181.6bps (-1.3bps) which saw a correspondingly smaller drop to 182.9 (-2.1). Spread movements were partly supported by UST yields rising (10y rose c.5bps) amid positive U.S. economic data – better manufacturing numbers, vehicle sales and factory orders. Meanwhile, credit flows in the China/HK IG space were firm with spreads tighter on property sector trades (eg., Greenland HK, CHIOLI, Golden Eagle) while mixed trades in oil names (CNOOC, SINOPEC) were seen as liquidity was redirected to Sinopec’s new issuances. In SEA, OCBCSP 23s yields continued widening on the news for formal acquisition of Wing Hang; Moody’s also announced it will be reviewing OCBC for downgrade. On the HY front, Chinese names traded c.0.75pts higher as demand from both hedge funds and PBs. In the SGD space, UOB 22s yields widened, while buying bias was seen in SPOST and MAPLSP perps. 

¨      China Merchants Bank (Baa3/BBB+/BBB; sta) is eyeing 3y CNH bonds at 4.35% area, with issue size to be capped at CNH1bn. Meanwhile, we also noted activities from Indonesian names in the regional bond space with Lippo Karawaci (Ba3/BB-/BB-; sta) and PT Chandra Asri Petrochemical (B2/sta) holding investors meeting in Singapore and Hong Kong this week and next week respectively. Lippo Karawaci may be eyeing senior unsecured USD150m of 8nc2018 notes via its wholly-owned subsidiary, Theta Capital. In the SGD space, Swiber (NR) is eyeing 2.5y SGD bonds at initial price guidance of 5.75% area. We opine that at 5.75%, it appears broadly in line with Swiber’s bond curve (SWIBSP 7.125% 4/17 at c.5.94%; SWIBSP 7.00% 4/16 at c.5.41%) and relatively cheap to Ezra 4.75% 3/16 at c.4.26% (NR) despite Swiber’s relatively stable and higher liquidity. Swiber’s EBITDA/interest ratio stood at 3.58x while Ezra’s stood at 1.53x for the FY13; while their debt/total assets ratio are broadly similar, at 42% and 44% respectively.

TRADE IDEA                                                          

¨      MYR: Switch from Encorp Systembilt Sdn Berhad 5/17 to Sabah Credit Corporation 6/17. In the AA1/AA+-rated space, SCC 6/17 (AA1/Sta) (MGS3Y+c.110bps; Price: 98.67; YTM: 4.49%) looks cheap after its last trade on 13-Mar with a pickup of 28bps (implied fair value: 4.21%) to the best-fit curve. In addition, we think switching out of Encorp 5/17 (AA2/Sta) (MGS3Y+c.69bps; Price: 100.45; YTM: 4.08%) makes sense for cash and yield pickups of 1.78pts and 41bps respectively in addition to better rating and liquidity in SCC. Credit-wise, we also prefer SCC over Encorp as it is less susceptible to payment delays since its personal financing assets are serviced via automatic salary deductions, while Encorp relies on disbursements of concession payments, which generally materialize within 1-2 months of invoicing. On a standalone basis, SCC benefits from continued support from the State Government of Sabah (via subordinated loans) and has solid capitalization strength, reflected by Tier 1 capital ratio at 20.9% as at end-Dec 2012. Credit-moderating factors of SCC are its inability to accept deposits and high impaired-financing ratio of 7% due to legacy loan issues. However, we think SCC’s support from the State Government, its accessibility to capital and its growing exposure to personal financing assets for civil servants mitigates these issues.

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