FW: RHB FIC Credit Market Update - 26/8/14

26 August 2014

Credit Market Update

Quiet Monday for APAC amid Flatter UST Curve; Value in HYUCAP 2/17

REGIONAL                      

¨      Quieter flows on London Bank Holiday. The JACI Composite saw marginal tightening to 243.5bps (-0.8bps) with similar movements in the HY (-1.4bps to 471.4bps) and IG (-0.7bps to 175bps). APAC credit markets were quieter due to the bank holiday in London yesterday. Within the IG space, China saw keen buying into oil-benchmarks (CNOOC, SINOPE) while HK saw investor interest into banks (ICBCAS, BNKEA) and property names (SUNHUN, SWIRE). In the SG USD arena, we observed net buying into STSP and balanced flows across Singaporean Bank/FI names. The Treasury curve flattened further, with 2y yields broadly unchanged while 10y yields tightened by 2bps to 2.38% led by disappointing US New Home Sales (actual: -2.4%; expected: 5.8%).

¨      Sluggish APAC primaries continues. Monday continued to prove a sluggish day for primaries, with MTD issuance in August (at c.13-14bn) significantly below the YTD monthly average of USD30bn. Upcoming potential issuances in the pipeline include Cathay Pacific (USD2bn MTN programme), ICBC (USD5.7bn AT1 bonds) and Bank of China (USD5bn AT1 bonds).

¨      Softer yields on the short and belly ends. The SGD swap curve flattened as the 1-7y maturities rose c.1.5-4.25bps while tightening of c.1-2.5bps was seen from the 10y mark onwards. This is in line with UST market speculation on early rate hiking following a slightly more hawkish Fed. Meanwhile, we observed Singapore’s CPI ease to 1.2% YoY in July (June: 1.8% YoY), mainly due to lower private road transportation costs. On secondary credits, the new PACRA 18 saw significant activity while there was buying bias in short-dated names like GGRSP 17 and EZRASP 18.

MALAYSIA

¨      Quiet Monday for MYR credit. Local bonds started the week on sluggish pace with total volumes of MYR283m (YTD daily average: MYR380m) amid the thin MGS trading of MYR692m. We saw MYR30m debut trade of SEB 7/29 to close at 5.37% (13bps below coupon of 5.5%). Malakoff Power 12/14 edged lower by 8.5bps to 3.954% on MYR40m transactions. Meanwhile, Aquasar continue to trade actively as MYR50m of the short-dated tranches 7/16 and 7/17 traded at 4.021% (flat) and 4.090% (+2.9bps) respectively.

TRADE IDEA: MYR

Bond	Hyundai Capital (HYUCAP) 2/17 (RAM: AAA) (Price: 99.93; Yield: 4.227%; 3y-MGS+c.68bps)
Comparable(s)	UMW Holdings (UMW) 6/17 (RAM: AAA) (Price: 99.67; Yield: 4.020%; 3y-MGS+c.48bps)
Relative Value	We see value in HYUCAP 2/17 which offers c.20bps pickup compared to UMWH 6/17 despite 4-months shorter tenure and trading c.22bps above 3y-BNM AAA of 4.005%.
Fundamentals	From credit perspective, HYUCAP possesses solid fundamentals: 1.     Leading automotive financier for Hyundai Group, the largest automotive group in Korea. Hyundai has c.70% of market shares in Korea and is the world 4th largest car manufacturer. 2.     Healthy asset quality with NPL of 2.6% in 1Q14 (industry average: 3.1%). 3.     Strong capitalization with total capital of 15.5% in 1Q14 in line with commercial banks average of 15.1%. 4.     Strong shareholders of Hyundai Motor (56.5%) and General Electric Capital (43.3%). 5.     High likelihood of parental support in the time of stress given the importance HYUCAP in facilitating the car sales of the group.