FW: RHB FIC Credit Market Update - 8/4/14

8 April 2014

Credit Market Update

Range-bound MYR Market; Little Change in APAC; Sime Exit Power Business

MALAYSIA

¨      MYR credits traded range-bound; Sime Darby exit power business. Flows were marginally higher with MYR217m traded (previous: MYR123m), in line with the new low seen in the MYR corporate bond market recently. Interest was seen on some financial and government-related names although yields were largely unchanged. We believe that data releases this week may be able to spur some interest, with both Malaysian Industrial Production and Manufacturing Sales value and US FOMC meeting minutes to be released this Thursday. In yesterday’s session, NBAD 6/15 was the most traded (MYR30m transacted), ending the day flat at 3.79%.

Meanwhile, Sime Darby 11/16 saw yield narrowed by 4bps to 3.80% (since last trade on 27-Feb) amid news of the company’s disposal of its non-core businesses, Port Dickson Power Plant and Operations and Maintenance business to Malakoff for MYR300m. This corporate exercise is in line with Sime Darby’s 5y strategy blueprint while the purchase consideration also reflects the short remaining tenure of the power purchase agreement (exp Jan-16), in our view. PD Power issuances with maturities in 2023 and 2024

REGIONAL

¨      HY and IG widened in tandem; UST narrows on lower-than-expected NFP. The JACI Composite gained 0.7bps to 252.8 as APAC market was quiet as usual for the start of the week whilst the JACI IG and HY moved broadly in tandem, gaining 0.7bps and 0.6bps respectively. Marginal gains were seen in the China/HK IG space, with average yields declining 3.5bps led by papers such as CHIOLI 11/22 and SWIRE 10/23 which saw yields narrowed by c.12bps. A mixed bag of papers led relative gains (average decline of c. 5bps) in the HK IG space, with trading seen on ZOOMLION 12/22, BRTFOD 5/18 and WHARF 11/17 posting narrower yields (c.13-19bps). In the build-up to the Indonesia elections on Wednesday, we saw activity on papers such as PERTIJ 5/22 and 5/41 which saw yields tighten c.3-11bps. In Singapore, continued to see demand for UOB and HDB papers, with activity especially centered on UOBSP 3/17 (-4.5bps) and HDBSP 3/21 (-2.5bps). Meanwhile the iTraxx AxJ dipped 1.3bps to 124.1bps. The 10yr USTs closed at 2.7016% yesterday (-2bps) as lower-than-expected Nonfarm Payrolls (NFP) numbers (actual 192k versus expected 200k) led market participants to believe that the Fed may slow its tapering program in light of slower job growth.     

¨      Oil India Limited (expected rating: NR/Baa2/BBB-) is issuing a 5 and 10 yr USD with an initial guidance price of T+250 and T+300 respectively. OCBC is marketing a Basel III compliant Tier 2 debt 10.5NC5.5 of circa T+265 (expected Moody’s rating: A2), with reset of USD 5yr mid-swap rate plus initial spread. Vista Land and Lifescapes is also meeting Hong Kong and Singapore fixed income investors tomorrow for a possible Reg S USD issuance.

TRADE IDEA

¨      MYR: Reiterate potential value in Bumitama 5.25% 3/19 (AA3). Pursuant to our call on the new Bumitama 3/19 on 28-Mar with 5.23% yield (MGS+c.138bps), its yield has since declined to 5.20% (MGS+137bps) on 1-Apr, which is still cheap in our view. The generous credit spread is still 17bps wide to BNM’s indicative AA3 credit spread of c.120bps, placing its fair value at around c.5.07%. From a credit standpoint, we like BUMITAMA for its healthy credit profile and positive growth outlook, supported by favourable operational metrics (FFB yield: 18.8MT/ha; OER: 23.5%) and a young tree maturity profile (weighted average of 5 years); while moderated by its relatively higher debt-to-assets ratio of 0.35x (industry average: 0.26x). Meanwhile, our outlook on CPO prices remains positive at currently up-trending levels based on weaker supply conditions in Malaysia and Indonesia as well as ongoing demand support from China and India.

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