FW: RHB FIC Credit Market Update - 7/4/14

7 April 2014

Credit Market Update

Weak Flows Ahead of NFP; APAC Could Gain on Technical Buying

MALAYSIA

¨      Investors seeking direction from NFP release; PetDag and Prasarana traded on quiet Friday. The MYR corporate bond market was extremely quiet last Friday with investors awaiting cues of US economic recovery from the non-farm payrolls (NFP) data release. Nevertheless, we expect investors to find comfort in the recovering US economy and UST rallies despite lower than consensus NFP figure. Total volume was light with merely MYR123m transacted (previous: MYR253m). Meanwhile, we saw mixed movements as investors traded lightly on few bonds. Newly issued Petronas Dagangan 3/15 remained 3bps inside its issuance level of 3.53%, closing at 3.50% (unchanged). We also saw trades on Prasarana’s new papers, with its 3/19 staying flat at 4.04% and its 3/24 gaining 5bps.

REGIONAL

¨      Credit spreads broadly unchanged; CDS improved. The Asian credit market moved largely sideways as investors traded cautiously ahead of the NFP data release. JACI composite was little changed, ended the day at 252.8bps (+0.7bps) with similar sentiment seen in both IG (180.2bps, +0.7bps) and HY space (489.9bps, +0.7bps). With papers generally moving sideways in the secondary market, we saw positive interest on new issuances such as new Siam Commercial Bank (SCBTB) 3.50% 4/19 which gained, as yield fell c.5bps to 3.43% last Friday. Meanwhile, Lippo Karawaci’s existing Theta Capital 6.125% 11/20c16 rallied at 6.45% (-23bps) in view of its new issue (4/22c18 at 7%) and reaffirmation by Fitch at BB-/A+(idn). Separately, we saw cheaper credit protection costs as iTraxx AxJ settled 1bp lower at 124bps. The US market responded to the below-than-expected NFP as USTs rallied 4-9bps across broad duration, which is likely to provide support to the Asian credit market this week, in our view.

¨      Indo names active in USD primary market. Following Lippo Karawaci’s (Ba3/Sta) recent USD issuance, we saw another high-yield Indonesian player, Sri Rejeki Isman (B1/BB; Sta) tapping the USD space. The company is expected to meet investors in Asia, London and US beginning today, with Reg S/Rule 144A USD senior notes likely to follow. In the AUD space, KFW (Aaa/AAA/AAA; Sta) plans to retap AUD300m bonds maturing 1/16, bringing the total amount outstanding to AUD2.6bn.

TRADE IDEA

¨      MYR: Reiterate value in BGSM 12/22 (RAM: AA3/Sta), which has remained cheap relative to the issuer’s yield curve with c.15bps of potential pick-up value. Last traded at 5.37% (MGS7y+c.140bps) on 13-Mar, its credit spread appears relatively wider versus other similar duration AA3 papers of c.125bps. Maxis has a strong business profile as a leading telecommunications operator with a 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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