FW: RHB FIC Credit Market Update - 21/7/14

21 July 2014

Credit Market Update

Spreads Ended Wider on Mild Profit-Taking 

REGIONAL                      

¨      Credits saw better selling as risk appetite rebounded. JACI composite spread rose to 240.5bps (+4.8bps), with the IG and HY spreads closing at 173.9bps (+4.5bps) and 463.7bps (+6.1bps) respectively. We saw better selling in Asian USD bonds last Friday across broad durations as strong earnings season in US may have overshadowed Russia/Ukraine situation. In the China/HK IG USD space, HUWHY 27 and SUNHUN 23 traded a couple of bps wider while TEMASE 19 and DBSSP 19 senior widened in the in the Singapore USD space. Last Friday, US Treasury yield movements reversed gains, rising 2bps to 5bps along the yield curve. Looking ahead, important data expected tomorrow include inflation and existing home sales, which are likely to be mixed. We expect credits to trade soft on better risk appetite while investors may focus on primary activities. Several Chinese companies were seen tapping the USD space, including China Railway (senior Perp) as well as real estate players Sino-Ocean Land (hired banks for investor meetings) and Sunshine 100 Holdings (hired banks for investor meetings).

¨      Mixed activity in belly trades; Halcyon to issue new 5NC3. Last Friday, SGD swap spreads closed flat from the belly onwards while USTs generally saw safe haven demand overnight. In the secondary credit space, we noted activity along the belly where interest was seen in names like GGRSP and MUTAFA.  On the primary front, Halcyon Agri Corporation Limited (NR) has announced a new SGD 5NC3 at an initial guidance of 6.75%; the note will feature a step up margin of 2% at the first call date.

MALAYSIA

¨      Local PDS edged lower. Yield for top traded bonds headed downwards last Friday. Investors were seen to keen on mid-duration papers while trading activities were heavily focused on financial and infrastructure names. Total trading volumes were below average at MYR297m compared to YTD daily average of c. MYR370m. We saw MYR10m debut trade of newly issued Aquasar Capital 7/15, ended the day lower at 3.89% (17bps below coupon of 4.06%). Other notable trades include Manjung 11/21 narrowed by 8bps to 4.45% on MYR35m trades; and HLB old-style T2 6/24c19 with MYR30m transacted tighter at 4.71% (-16bps since 23-June).

TRADE IDEA: MYR

Bond	ADCB 11/17 (AAA) (price: 102.30; yield: 4.60%; MGS+c.126bps)
Comparable(s)	ADCB 5/17 (AAA) (price: 99.48; yield: 4.50%; MGS+c.116bps) NBAD 12/20 (AAA) (price: 102.45; yield: 4.46%; MGS+c.67bps) UMWH 6/17 (AAA) (price: 99.57bps; yield: 4.05%; MGS+c.71bps)
Relative Value	We initiate a call to overweight ADCB 11/17 which offers c.70bps pick up relative to the BNM indicative yield curve (BNM 3y: 3.90%). Despite being a Middle East name, we opine that the paper was traded cheaply relative to the AAA space, based on the last done level seen on July 17. In comparison with  local name like UMWH 6/17, ADCB 11/17 is trading at a whopping 55bps wide, which is undervalued in our opinion given its strong fundamentals.
Fundamentals	1.        ADCB’s MYR3.5bn MTN programme is guaranteed by its parent, Abu Dhabi Commercial Bank PJSC (ADCB). ADCB, the third largest bank in UAE by assets, is majority-owned by the Abu Dhabi government and deemed to be systemically important to the UAE 2.        ADCB is rated at A1/A/A+ by Moody’s, S&P and Fitch, 1-2 notches higher than Malaysia’s sovereign ratings of A3/A-/A-.