FW: RHB FIC Credit Market Update - 29/9/14

29 September 2014

Credit Market Update

Long-Dated China Credits Advanced; Some HK Profit Taking Seen Ahead of Occupy Central; Stay in YTL Power 3/23

REGIONAL                      

¨      Gains seen in long-term low beta APAC credits. The JACI Composite widened by +2.7bps (to 241.8bps) led by the HY by a larger +4.6bps (to 473.3bps) while the IG broadened by as lesser +2.3bps (to 172.8bps). The iTraxx AxJ signaled marginally increasing risk sentiment as it rose 1.6bps to 96.3bps. We continued to observe demand for long-end low beta names in China, especially demand interest seen in CNOOC papers while there was corresponding selling in short-ended CNOOC papers. In HK, a similar trend was seen, with gains seen in long-term HUWHY papers. Nevertheless, we observed general selling activity on Friday led by the HK property sector as investors could potentially be profit-taking before the Occupy Central in HK yesterday. In Singapore, we saw general profit-taking led by TEMASE and PSASP. Treasuries declined on Friday as the 10y benchmark widened by +3bps (to 2.53%) as US Q2 GDP numbers (expected: 4.6%; consensus: 4.6%) and US Core Personal Consumption Expenditures (expected: 2.0%; consensus: 2.0%) came within expectations, signaling a possible rise in Fed rates next year. 

¨      In the APAC primaries, Huatai Int’l Finance is pricing a REG S USD 5y (A1/NR/NR) at final price of 185bps, 15bps inside initial guidance. RHB Bank is pricing REG S USD 5y (A3/BBB+/NR) at initial guidance of T+145bps.

¨      SGD rates retraced lower. SGD swap rates declined 2-4bps with the 3y/5y spread flattening to 63.3bps (from 64.0bps). Meanwhile, there were mixed flows in the credit space with buying interest seen on WINGTA 21 and GUOLSP 19. In the pipeline, Frasers Centrepoint (NR) is tapping the bond market again on reverse interests, offering SGD benchmark 7y bonds at c.4% guidance. To recap, the company issued SGD600m Pc19 at 4.88% last week. Pricing on the new offering is expected today.

MALAYSIA

¨      PDS market toned down but interest remained in long-dated quality papers; MGS market fell quiet. Investors continued to be active in long-dated quality names last Friday as trading volume fell 21% to MYR499m from MYR630m on Thursday. Top traded names included Prasarana 3/19 for a total of MYR50m transacted and last done at 3.97% (-0.9bps).  Also seen were HLBANK 6/24c19 B2T2 widening 16.4bps to 4.639% on MYR30m exchanged and BUMITAMA 3/19 inching 0.6bps tighter to 4.92% on MYR25m traded. Meanwhile, MGS volume was subdued at MYR1.14bn (Thursday: MYR1.16bn) by a lack of compelling trade catalysts. Investors were active particularly in the 7y-MGS (-0.5bps, 3.81%, MYR304m) and 10y-MGS (-0.3bps, 3.92%, MYR274m). The 3y/10y spread has widened to 62bps from 46.6bps. Focus remains on the final auction for September - reopening of GII 4/19 for MYR3.5bn.   

TRADE IDEA: MYR

Bond(s)	YTL Power 3/23 (yield: 4.81%; MGS+94bps) (AA1/Sta)
Comparable(s)	TTPC 1/21 (yield: 4.43%; MGS+62bps) (AA1/Sta)
Relative Value	We reiterate our preference for YTL Power 3/23 that has gained c.21bps since we initiated the idea in our Credit Market Update (dated 2-June).
Fundamentals	We believe that although YTL Power Int’l is exhibiting a slightly weaker financial profile, we should not yet profit-take as we await possible PPA extensions. 1.     Slightly weaker fundamentals. YTL Power International exhibits slightly weaker fundamentals if compared with its peers*, with its FY2013 Total Debt/ EBITDA at 8.1x (peers: 7.1x) and EBITDA Interest Coverage at 3.7x (peers: 4.4x). Nevertheless, this is mitigated by its large cash pile (FY2013: MYR9bn) compared to its ST debt (FY 2013: MYR2bn). 2.     Awaiting possible PPA extension. YTL Power recently failed to secure Project 4A (a c.1400MW power plant in Pasir Gudang, Johor) from the Energy Commission to replenish its depleting energy orders in Malaysia as its two older Power Purchase Agreements (PPAs) with TNB are expiring in 2015. Nevertheless, there have been discussions in the market that YTL Power could potentially be receiving a PPA extension from TNB emanating from construction delays in Tanjung Bin Energy. Hence, we opine to hold on to YTL Power 3/23 until further clarity is obtained. * Peers: Tenaga Nasional Berhad, Malakoff Corporation Berhad, Sarawak Energy Berhad

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
Palm oil export tax	Plantation	ID	Indonesia followed suit to allow duty-free palm oil exports after Malaysia.	Positive. We think such measure will help place Indonesian planters at a competitive position, benefiting primarily the upstream players.
Indian Banks	Banking	IN	S&P revised the outlook for 11 banks under its coverage to stable from negative. These banks include ICICI Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank, State Bank of India, Bank of India, IDBI Bank Ltd, Indian Bank, Union Bank of India, IDFC and Kotak Mahindra Prime. The revisions follow S&P’s outlook revision on the sovereign credit rating of India (BBB-/Stable/A-3) largely based on a better outlook for policy/reform implementation by the new government. However, Indian Overseas Bank and Syndicate Bank remain on negative outlook.	Mild Positive. We now see reduced downgrade risks for the banks with stabilized outlooks.