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

4 August 2014

Credit Market Update

Firmer Trading in APAC on Weaker NFP; Pick-Up Seen in SUNHUN 11/20

REGIONAL                      

¨      Better buying across APAC credits; UST yields tightened from weak NFP data. The JACI Composite widened by 4.8bps (to 241bps) with corresponding movement in both the IG (+4.7bps to 173.7bps) and HY (+5bps to 463.7bps). We saw better buying into lower beta papers in China like state SOEs such as CNOOC, Sinopec and CHGRID which tightened by 2-3bps and HK with interest on SUNHUN and HUWHY. Over in the USD Singapore space, yields traded a couple of bps tighter led by trades on CAPITA, TEMASE and PSASP. The 2y and 10y UST benchmark tightened by a similar c.6.5bps (to 0.4673% and 2.50% respectively) as actual NFP numbers came in weaker than forecast (actual: 209k, forecast: 233k), and coupled with a continued dovish Fed, has dampened speculation that the Fed will speed up the rate hike projected in 2015.

¨      Softening in SGD credits observed. SGD swap rates last Friday ended 1-6bps wider across the curve, in line with UST rates extended their climb on better-than-expected GDP data. On secondary credits, activity was concentrated along the belly, with general selling pressure in CENCHI 17, CMASP 17, GGRSP 17, NCLSP 17, MAPLSP Pc17 and SIASP 20.

MALAYSIA

¨      Ringgit secondary market inched lower. Local credit closed the week with strong flow of MYR502m last Friday, led by financial and GRE names. Total volumes for the week were moderate at MYR1.4bn (daily average: MYR468m) due to the Hari Raya holidays on Monday and Tuesday, compared to MYR2.2bn (daily average: MYR443m) the week earlier. Meanwhile, MYR credit flows registered active monthly trading activities of MYR10.4bn in July, translate to daily average of MYR546m (vs June: MYR8.5bn, daily average: MYR425m). Yields were generally closing tighter for the top trades last Friday. We saw separate transactions of HLB oldstyle T2 5/21c16 and 6/24c19 closing at 4.23% (flat since 31-Jul) and 4.69% (-2bps since 18-Jul) respectively on combined volumes of MYR80m; while a series of DanaInfra 4/21-10/28 on MYR65m collective activities narrowed by 2-11bps to 4.18%-4.68%. Other notable transactions include the debut trade of newly-issued Sentoria ranging 7/19-7/21, which saw cumulative trades of MYR30m ending 30bps below coupon at 4.8%-5.0%.

TRADE IDEA: USD

Bond	SUNHUN 11/20 (ytm: 3.34%, T+c.142bps); (A1/A+/A)
Comparable(s)	SWIRE 8/19 (ytm: 2.77%; T+c.106bps) (A3/-A-/A-)
Relative Value	We initiate a preference for SUNHUN 11/20 which seems cheaper compared to SWIRE 8/19, providing a potential pick-up of around 40-50bps by adding duration of only 1.25 years and getting a better credit of two notches higher.
Fundamentals	We opine that SUNHUN 11/20 is an attractive proposition given: 1.     Its strong ability to weather a slowdown in the Hong Kong Property market. Credit metrics are more fundamentally sound compared to its HK property peers with Total Debt/ EBITDA at 3.4x (peers: 5.8x) and Interest Coverage at 9.33x (peers: 4.48x). 2.     Minimal impact from the Kwok brothers’ case. The criminal charges brought against the Kwok brothers (co-chairmen in Sun Hun Kai Properties) in May 2014 are expected to conclude sometime in Aug-Sept 2014. Due to the established nature of company, we expect minimal impact to the repayment capability of Sun Hung Kai. Nevertheless, key risks arise if prosecutors decide to charge the company. Property peers: Cheung Kong Holdings Ltd, Kerry Properties Ltd, Swire Pacific Ltd, The Wharf Ltd, Henderson Land Ltd, New World Development Ltd, Agile Property Hldg Ltd)

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
India Banking System	Banking	IN	State Bank of India, ICICI Bank Ltd. and 37 other financial institutions sold INR100bn (USD1.6bn) of non-performing assets to asset reconstruction companies over 12 months prior to March 2014, 20 times more than the year prior.	Positive. This will help banks’ to strengthen their balance sheets, alleviate liquidity stress and increase capacity to extend credit.
Industrial and Commercial Bank of China (Macau) Ltd (ICBC Macau)	Banking	HK	Moody’s upgraded ICBC Macau’s deposit ratings to A2/P-1 from A3/P-2, reflecting strengthening in its local franchise in Macau, and the bank's maintenance of good asset quality metrics, sound capitalization, and adequate profitability.	Neutral.