FW: RHB FIC Credit Market Update - 22/7/14

22 July 2014

Credit Market Update

Rotational Flows into Credit; Nice Pick-up from Jati 1/17 

REGIONAL                      

¨      Asian credits started the week on softer tone while flows seem to be evenly balanced. Retail investors adding position on flight to safety as sluggish stocks on rising geopolitical tensions attracting flows into fixed income. Besides, we also saw continuous, mild profit-locking on Chinese and Korean credits as limited near term upside seen from this segment, coupled with the fear over second default case on Huatong Road & Bridge Group Co. (after Chaori Solar in March). HK credits are another favourite, in view of lack of supply and offers from secondary market.  On the primary front, among notable offers are Tata Steel (NR/BB/BB+, all stable), Sino Ocean Land (Baa3/BBB-/BBB-, all stable) and China Exim Bank.

¨      SGD curve flattened; strong PB interest in Halycon Agri. Yesterday’s SGD swap curve flattened, ending c.2bps wider on the short-to-mid-term while tightening c.0.1bps on the long end in line with the USTs, where the 10y UST has narrowed to 2.47% (lowest yield level in seven weeks) on Ukraine geopolitical concerns. In the secondaries, we saw interest in established names like HDB and UOB perps while the Russian bank senior SGD paper, VTB 15’, saw mostly selling activity, widening an additional c.9bps to 4.55% on Monday. In the primary market, we saw Halycon Agri Corp Ltd (NR) printing a SGD 5NC3 at final price of 6.5% (25bps inside initial guidance) driven by strong demand by PBs (>90%).

MALAYSIA

¨      Aquasar strong debut on pretty active Monday. Secondary trades registered encouraging start to the week with above average trading volumes of MYR470m. We saw buying bias on the newly-issued Aquasar as yield traded downwards to 4.90%-5.19% for maturity between 7/25-7/29 on cumulative transactions of MYR170m. Other top trades include UOBM old-style T2 3/20c15 saw MYR70m closed 12bps wider (since 8-Jul) to 3.87%; and GB Services tighten by 1bp (since 18-Jul) to 4.39% on MYR20m activities.

TRADE IDEA: MYR

Bond	Jati Cakerawala (Jati) 7/17 (RAM: AA3) (MTM Price: 99.16; MTM Yield: 4.76%; 3y-MGS+c.128bps)
Comparable(s)	Eversendai 9/18 (RAM: AA3) (MTM Price: 99.40; MTM Yield: 4.88%; 3y-MGS+c. 140bps)
Relative Value	We initiate a call on Jati 7/17 with potential pick up of c.28bps relative to BNM’s AA3 yield curve (3y BNM AA3: 4.308%) and c.128bps above 3y-MGS curve.
Fundamentals	Jati’s fundamentals are supported by the stable business profiles of its 80%-owned independence power producer, Teknologi Tenaga Perlis Consortium (TTPC). The latter has a commendable operational performances and favorable power purchasing terms with TNB, providing stable dividend incomes to Jati. Both Jati and TTPC borrowings run down at the same maturity profiles, indirectly spreading out the subordination effect. The purchasing power agreement expires in 31 March 2024. We are recommending a short duration tranche for better performance visibility.