FW: RHB FIC Credit Market Update - 5/8/14

5 August 2014

Credit Market Update

Softer Trades Expected On Weaker China Services PMI; Value in HUWHY Pc2017

REGIONAL                      

¨      Disappointing China Services PMI expected to dampen trading today. The JACI Composite widened by 1.8bps (to 242.8bps) mostly led by the HY which saw a similar movement of 5.1bps (to 468.9bps) while the IG broadened by a lesser 1.1bps (to 174.7bps). In HK/China, we saw a heavy slant towards lower yields led by papers like BCHINA, RESOPW, HUWHY and SWIRE. The Singapore USD market also saw active buying on bank names with OCBCSP, UOBSP and DBSSP trading 2-6bps tighter. The lower than expected July HSBC China Services PMI of 50.0 (June: 53.1), which is the lowest in 9 years, is expected to dampen investor trading sentiment today. The 2y and 10y UST benchmark tightened by c.1bp as markets continue to price in a potentially later-than-earlier Fed rate hike. Correspondingly, short term rates, which are more susceptible to Fed rate decisions, have fallen faster than longer term rates. We opine that the dovish stance of the Fed coupled with geopolitical uncertainty in Ukraine and in the Middle East will cap migration towards sustainable higher yields for now.

¨      Slow Monday sees mixed SGD trades; Far East Horizon to tap primary market. The SGD swap curve yesterday narrowed 5-8bps in line with UST rates advancing amid shares of Banco’s Espirito Santo’s being suspended and the bank’s filing for creditor protection. Meanwhile we observed secondary credit interest in Olam, Oxley and PIL as well as buyers in DBS and UOB perps. Additionally, there was derisking in VTB 15s, amid US and Europe sanctions on Russia, and better selling in BIGSP 17 and IOCLIN 22s among PBs. On the primary front, Far East Horizon Ltd (NR; BBB-/Sta; NR) is planning a new SGD 5-year deal with an initial guidance of 4.3%.

MALAYSIA

¨      MYR corporates gain further as MGS stood firm. We saw about MYR340m transacted across duration and sector, within the YTD daily average. Celcom's CTX 8/19 was the most active with MYR60m transacted in two separate trades, closed 0.9bps higher at 4.322%. The Danainfra curves flattened, as Dana 10/28 and Dana 7/34 closed +0.7bps and -1bp respectively to 4.691% and 4.85%. Some foreign names were seen changed hands - the newly-issued Golden Assets 8/19 made a debut trade at 5.20%, or 15bps inside the initial price on MYR20m volume while KEXIM 2/17 gained as yield inched 3.7bps lower to 3.993% with MYR40m reportedly done.

TRADE IDEA: USD

Bond	HUWHY 6% Pc2017 at 2.881% (+198.4bps)
Comparable(s)	HUWHY 7.625% 2019 at 2.44%, HUWHY 5.75% 2019 at 2.45%
Relative Value	We strongly believe the perp will be called at the first opportunity (in May-2017) given the expensive coupon reset of T5+517.6bps (effective 6.826% on current rate). As such, absolute yield investors should not differentiate much of its senior vs hybrid – with immediate pick-up of c.43bps seen by having the latter, while at the same time cutting portfolio duration by c.2 years.
Fundamentals	HUWHY becoming a household name within the investor fraternity is underpinned by its: 1)     Diversified asset base – From energy to infra and ports, telcos to retail, we like HUWHY for perfect diversification play. Nonetheless, the slowdown in its property/hotels segment could pose some concerns in the near term. 2)     Stable credit metrics – Net gearing stood at c.2.2x in 1H14 with gross leverage rose to 3.9x at the back of some acquisitions (on Envestra, Park n Fly) during the period. Cash improved to HKD101.9bn in the 1H14 (from HKD85.7bn) in Dec-13, while debt/EBITDA fell to 4.94x from 5.11x as management continue to deleverage. 3)     Easy access to credit – The Group has strong financial flexibility from various sources from equity to hybrids and bonds to loan syndication.

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
Ezra Holdings	Offshore support vessel (OSV)	SG	Ezra Holdings, an oil and gas offshore contractor and service provider, has been awarded several projects worth USD110mil so far for 4QFY8/2014	Positive. This will positively add to Ezra’s book order of around USD2bn (as at Apr-2014).
ICICI Bank (ICICI)	Banking	IN	ICICI is offering 10y INR senior notes at 9.15% or 9.36% as recent regulations have relaxed cash and statutory reserve requirements for long-term bonds. We understand that a level of 9.15% is at least 5bps tighter than the AAA -rated Indian corporate bond yield curve.	Positive. New issuances like these senior notes can moderate funding costs and improve asset-liability management, especially for long-term infrastructure lending and affordable housing projects.