FW: RHB FIC Credit Market Update - 17/10/14

17 October 2014

Credit Market Update

Strong Econ Data Reverse Treasury Gains; Selling-Pressure on China Property Emanating from Agile

REGIONAL

¨      Credit yields rose; Agile’s director went missing. Overnight strong US data aided a reversal in UST yield performance (+2bps to +3bps), following several sessions of sharp decline. In the Asian USD credit space, we similarly saw better selling as yields edged wider. China property names continued to suffer selling pressure as Agile's one of its directors went missing while its Chairman remained under detention. Papers traded include FRANSH 17-22 and GRNLHK 16-24 which saw yield widening. Investors' sell-off led to continuous spike in JACI HY spreads (+18bps to 557bps) while the IG spread saw a smaller impact, inching a tad wider (+3bps to 195bps). CDS jumped, as seen with iTraxx AxJ which rose 9bps to 6-month high of 131bps.

¨      On the primary front, Hanjin International (Aa3e/NR/NR) is eyeing USD floaters, which will be guaranteed by the Export Import Bank of Korea. Meanwhile, market rumours and speculations emerged that China corporate supply may be slowed down if China suspends approvals amid consideration of tighter bond issuance rules.

¨      SOR firmly gained yesterday; profit-taking on established SGD credits. The 3y and 5y SOR tightened in tandem by an average 13.4bps, bucking the trend in Treasuries which saw a widening of c.3-4bps for the same duration papers. SGD credits traded a few bps wider yesterday, with profit-taking seen in established names such as CAPLSP, UOB and DBS and also on O&G names like NCLSP, EZRASP and SWIBSP on concerns that falling oil prices would negatively impact orders for rigs and offshore support vessels.  Cordlife Group Ltd (NR), a Singaporean healthcare product company, is pricing a SGD3y at initial price of 5% while Ascott REIT (Baa3/-/-) is pricing its Pnc5 at initial guidance of low 5%.

MALAYSIA

¨      MGS/GII gained amid weakening of the Ringgit; PDS market active on GREs, tolls and power. Local govies gained yesterday with yield generally tumbled across the benchmarks amid the weakening of the MYR to 3.286 (+0.53%). Buying interest were seen in mid-to-long term benchmarks with MYR5.7bn done, well above average of MYR1.3bn. Among the top performers were 7y-MGS (-2.6bps, 3.764%, MYR945m), 10y-MGS (-2.1bps, 3.782%, MYR129m) and 10y-GII (-1.7bps, 4.092%, MYR1.1bn). Meanwhile, activity continue skewing towards mid-duration papers on the corporate spaces. Tanjung BP transacted on two separate tranches with combined volumes of MYR150m settling at 4.439% (-5bps) and 4.558% (unchanged) for maturity 8/19 and 8/20. Typical high quality liquid names such as PLUS 8/19 (-0.8bps, 4.760%, MYR40m), Prasarana 9/29 (-2.4bps, 4.689%, MYR40m) and Danainfra 4/21 (-0.2bps, 4.170%, MYR30m) were also seen changing hands. Overall, total volumes of MYR642m reportedly transacted in corporate space.

TRADE IDEA: MYR

Bond(s)

SEB 7/29 (RAM: AA1) (Price: 101.81; Yield: 5.32%; 15y-MGS+c.119bps)

Comparable(s)

K-Prohawk 6/29 (RAM: AA2) (Price: 100.3; Yield: 5.29%; 15y-MGS+c.116bps)

Relative Value

We see value in SEB 7/29 which is trading 3bps above the one-notch lower rated K-Prohawk 6/29. At 5.32%, the paper is trading at attractive c.46bps discount to our indicative AA1 yield curve. We opine that there is room for further yield compression given the lack of supply on long maturity papers and healthy fundamental of SEB.

Fundamentals

Fundamentally, SEB possesses a robust credit profile:

1)     Strategically important as the sole electricity provider in Sarawak. This provide strong incentive for the state government to deliver financial assistance if necessary.

2)     Sarawak is one of the richer states in the country supported by its vast natural resources.

3)     Moderate financial profile with gearing of 1.4x and debt-to-EBITDA of 6.75x in 2013.

CREDIT BRIEF

Company/ Issuer

Sector

Country

Update

Impact

Agile Property

Property

CN

Agile’s planned rights issue contracted in size to raise more HKD1.65bn (est. USD213m), compared to earlier plans to raise HKD2.75bn (est. USD354m) which has been cancelled.

Negative. We think the potential amount to be raised from the rights issue still falls short of Agile’s USD475m debt repayment due in December.