FW: RHB FIC Credit Market Update - 15/5/14

15 May 2014

Credit Market Update

APAC Ended Flat Ahead of Yellen’s Speech; Negligible MYR Corporates on Busier MGS; UOB Priced 12NC6 SGD at 3.50%

REGIONAL                      

¨      Credit spreads tilted lower; USTs rallied ahead of Yellen’s speech. JACI spreads remained broadly unchanged although tilted towards tighter spreads. JACI Composite spread moved sideways (-0.5bp to 252.5bps), having narrowed moderately early this week (-4bps since Monday), with similar movements seen in both IG (-0.4bp) and HY space (-0.5bp). In the secondary bond market, China/HK IG USD space saw better buying as investors focused at the short- to mid-end. Some primary movers include TENCNT 3/18 which traded 15bps tighter (yield: 2.50%) on stronger quarterly earnings and GRNLHK 10/16 (-17bps to 4.72%). Similarly in the Singapore USD space, we saw more buyers with trades centered at the short- to mid-end. Clifford Capital (CLFCAP) 11/18 led the IG space, trading 10bps tighter to 1.872%; while SP Power Assets (SPSP) narrowed 9bps to 3.27%. Meanwhile, important data releases this week include: US –initial jobless claims, CPI and industrial production (today), Singapore – retail sales (today). We opine that the investors’ sentiment in APAC could remain firm ahead of Yellen’s speech today, partly banking on the expected low-inflation in US. 

¨      Westpac (Aa2/AA-/AA-; Sta) printed 3y USD1.25bn senior notes at T+43bps and 5y USD1.75bn covered bonds at 35bps over mid swaps. ICBC Singapore branch has successfully sold USD700m 3.5y of senior bonds at 2.635% with bid-to-cover ratio exceeding 3x, as a large chunk went to Asian investors (89%) and the remaining to European investors (11%). Meanwhile, HY issuer Yanzhou Coal Mining (Ba1/Neg) is eyeing PNC2016 at price guidance of c.7.50%.

¨      SGD secondary space traded firmer. We saw better buying in the SGD secondary market, as Yanlord (YLLGSP) 5/17 traded 1bp tighter to 5.855% while Capita Commercial Trust (CCTSP) narrowed 2bps to 1.05%. Meanwhile, Ezion (EZISP) 5/15 traded 2bps tighter amid new issuance in the pipeline.

¨      On the SGD primary front, Central China Real Estate (Ba3/BB-; Sta) is eyeing 3y bond sale of c.SGD200m at high 6% area, with proceeds expected to refinance its 2009 convertible bonds (HKD687m outstanding, maturing 8/14) with warrants and for general corporate purpose. Apart from USD and HKD bonds, it currently has SGD175m 10.75% 4/16 paper yielding 6.625%. Similarly, Ezion Holdings (NR) is eyeing SGD bonds from its SGD 1.5bn Multicurrency Debt Programme, with proceeds expected to fund the proposed tender/repurchase of its existing SGD100m notes due in 5/15 and for general corporate purposes. Meanwhile, UOB has printed SGD500m 3.50% 12NC6 T2 subdebt (A2/A+; Sta) at par.

¨      Bank of Baroda’s net profit up 12.5% YoY for 1QFY14. 56.3%-government owned Bank of Baroda registered higher net profits of INR11.57bn owing to increased net interest income and lower taxes offsetting higher credit costs. However, its net non-performing advances (NPA) crept up to 1.52% from 1.28% in 1QFY13 despite total advances growing 21% YoY to INR3.97trn. In addition, the bank’s Tier-1 capital ratio declined to 9.54% from 10.1% level in the previous financial year.

     

MALAYSIA

¨      MYR credits on the backseat as MGS market draws the crowd; intermediate-term papers traded. Yesterday’s credit activity plunged to a negligible MYR40m from MYR204m (on Monday), as investors redirected attention to MGS markets (volume: MYR3.22bn), with some repositioning for the re-opening of the MGS 04/33 20y (MYR2.0bn) today. Meanwhile, secondary credit interest was directed to the mid-section of the curve, with top traded names realigning wider. Active names were WCT 4/20, up 7bps to 4.99% since 7-May 14 on MYR15m traded as well as YTL Power 8/18 and 6/22 respectively done at 4.32% (+17bps) and 4.89% (-2bps) since last Monday on MYR5m traded each. Maintain expectations of secondary flows to be mild for the week as investors await 1Q14 GDP data, to be released this Friday.

TRADE IDEA: USD

¨      We like Maybank USD subdebt 3.25% (MAYMK 3.25% 22c17, NR/BBB+/BBB+) at Z+282 or c. at its par value. The stock has been sluggish since it was issued in Sep-12 (at T+260), having traded below par for most of the period and we view this as unwarranted. As such we reiterate our view on MAYMK 3.25% based on the following grounds; i) nice duration play with first call date in Sep-17, failing which the coupon to be reset to 5y UST+260bps (c.4.16%), ceteris paribus; ii) superb pick-up against the senior by a whopping +165bps with sub/senior ratio of 2.26x; iii) exposure to the largest bank in Malaysia; and iv) scarcity premium of Malaysian credits in USD space.