FW: RHB FIC Credit Market Update - 12/9/14

12 September 2014

Credit Market Update

Asian Credits on Consolidation Mode; Spot Value in PWONIJ 19

REGIONAL                      

¨      Asian credit ended mostly flat. JACI IG yield ended almost unchanged at 4.057%, signaling limited upside from now onwards. It continues to move towards our initial targeted fair value 4.17% as the market inch closer towards full QE3 exit next month. China/HK IG drove the JACI IG spread tighter by 3bps to 170.3bps, while the HY spread narrowed 2bps to 459.8bps. On the primary front, focus would be on ICICI new USD500m 5.5y Senior (Baa2/BBB-/NR) priced at T+180bps (or 3.57%, 99.10), coupon of 3.50% and UOB (Aa1/AA-/AA-) 5.5y Senior at indicative T+85 (Z+60). Rising jobless claims and wider deficit in US could provide support to the market today.

¨      SGD credits remained better bid despite higher swap rates. SGD swap rates continued rising yesterday (+3bps to +5bps) while the 3y/5y spread steepened further to 62.4bps (from 61.6bps). With UST yields closing unchanged during the overnight session, we opine that SGD rates may similarly see resistance to its upward trajectory ahead of Singapore retail sales and unemployment rate releases next Monday. Meanwhile, credits continued to see buying interest across the space in names like CAPITA, TEMASE and TATAIN.

MALAYSIA

¨      BGSM topped the volume chart; MGS rebounded amid weak IPI data. Corporate spaces were generally range bound yesterday with above average trading volume of MYR599m (YTD daily average: MYR430m). BGSM traded on two separate tranches 12/23 (-0.2bps, 5.217%) and 6/24 (-5.8bps, 5.260%) topped the chart with combined MYR142m exchanged hands. In addition, we saw flattening of Aquasar curve where short-dated 7/15 broaden 3.6bps (3.995%, MYR70m) while 7/21 tighten 5.1bps (4.529%, MYR15m). MGS registered better performance as yield for mid-long-tenure benchmark MGS 10/19-9/43 decreased 0.5bps-2bps ended the day in between 3.73%-4.67% amid dismay industrial production of 0.5% y-o-y in July (June: 7%). Activities in the government space remained quiet at MYR847m (vs YTD daily average: MYR1.4bn) skewing toward the short-dated papers. MGS 9/16 was the most traded paper closing lower at 3.3% (-13bps, MYR291m), followed by MGS 8/15 inched 5.6bps higher to 3.381% (MYR140m).

TRADE IDEA: USD

Bond(s)	PWONIJ 7.50% 2019 at 6.42%, 102.88
Comparable(s)	LPKRIJ 7.00% 2019 at 4.85%, 106.62
Relative Value	Tactical switch to PWONIJ will give investors luscious pickup of c. 157bps, receiving net cash of USD4.34 per par and exposure into Indonesia property play – away from the ‘overcrowded’ Chinese property space and the associated headline risks. We view the spread from rating differentials as too wide and looks to narrow as search for yields continue.
Fundamentals	We view Pakuwon as an alternative from the pricier LPKRIJ, based on the following grounds: i)      Well-balanced portfolio of development and investment properties with over 40% of recurring income from the latter ii)     Established position in Surabaya and increased presence in Jakarta iii)    Set to benefit from the rising numbers of middle-class consumers and urbanization.

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
YTL Corp	Diversified	MY	Plans to acquire 49% stake in NSL Orissa Power, a 1320-MW coal-fired power plant in India with estimated investment around INR8,000 crore (MYR4.2bn) expected to be funded through debt-equity of 70:30.	Positive. This will replenish YTL’s recurring income sources as its concessions under YTL Power Generation are set to expire in Sept 2015.