Lack of Catalysts Capped Asian Credits; Value in Genting Capital 6/22

11 November 2014

Credit Market Update

REGIONAL

¨      Investors seek catalysts amid risk-on mode. UST yields rose 4-6bps overnight alongside weaker 3y UST auction demand, lack of data-driven catalysts and US corporate earnings tilting upside. In the USD credit space, we saw better selling in HK/CN on O&G and property names, such as FRANSH 21, GRNLGR 24 and CNOOC 32-37 as yields widened a couple of bps. Meanwhile, FIs were better bid in the SG space such as UOBSP 20 senior and DBSSP 37c15. Papers traded in MY and TH saw yields tightening, such as TELMAL 25, KBANK 19 senior and SCBTB 19 senior. JACI IG spread closed unchanged at 181bps while JACI HY spread rose 6bps to 506bps. iTraxx AxJ was, again, unchanged at 107bps.  On the primary front, Cofco Land (NR/NR/A-) priced USD800m 5y at T+215bps (guidance T+237.5bps). In the pipeline, Beijing Infrastructure (A2/A-/A+) is eyeing USD bonds with investor meetings commencing today while Virgin Australia (B2/B+/NR) is holding roadshows to sell USD300m 5y senior.

¨      SGD yields declined; investors focused on short-end. The SOR curve lowered 1.2-4.7bps, more than reversing previous session’s movements (+1bp to +2.7bps). The 3y and 5y rates declined 3.8bps and 4.7bps respectively, leading to a flatter 3y/5y spread of 57.9bps (-1.5bps). We noted interest in the short-end, with papers like CITSP 16 and MIOAU 16 tightening a couple of bps. On the primary front, China’s Giti Tire (NR) received SGD200m orders for its SGD100m 3y offering, priced at 6% (initial guidance of 6.125%).

MALAYSIA

¨      Quiet secondary flows; MGS moved sideways; UEM led corporate activity. Local govies moved sideways with lackluster activity of MYR1bn yesterday compared to YTD daily average of MYR1.5bn. At the end of the day, 2y, 5y, 10y and 15y-MGS settling at 3.455% (+1.3bps, MYR300m), 3.632% (-0.4bps, MYR26m), 3.77% (-0.6bps, MYR102m) and 4.124% (-0.3bps, MYR100m). Similarly, corporate space registered below average trading activity with total transactions of MYR327m (YTD daily average: MYR439m). UEM 6/21 topped the volume chart closing near to its previous level at 4.669% (-0.2bps, MYR100m). We saw Kesturi exchanged hands in 2 separate tranches on combined trades of MYR30m - Kesturi 12/30 ending flat at 4.513% (-0.3bps) while Kesturi 12/33 realigned 9bps downward to 5.529% since last traded on 22 July. Meanwhile, we expect a slower GDP growth for 3Q14 of c.5.4% after grew by 6.4% in 2Q14, which to be announced this Friday.

TRADE IDEA: MYR

Bond(s)

Genting Capital (“Genting”) 6/22 (RAM: AAA) (Price: 98.36; Yield: 4.679%; 7y-MGS+ c.95bps)

Comparable(s)

-

Relative Value

We see value in Genting 6/22 given its attractive pick-up relative to the AAA space, strong fundamentals and technical positive from the roll-over effect. At 4.679%, the paper is trading at c. 24bps cheaper to our indicative AAA yield curve. The scarcity of supply from gaming sector could entice demand for the paper with potential tightening from current level (last done: 4-Nov).

Fundamentals

The debt facility of Genting Capital is unconditionally and irrevocably guaranteed by Genting Bhd. The latter’s credit profile is supported by its strong balance sheet. As at Jun-14, Genting’s gearing and debt-to-EBITDA is low at 0.25x and 2.1x respectively. In addition, the Group has ample cash balance and financial assets of MYR22bn compare to total debt of MYR12.9bn (i.e. net cash).

CREDIT BRIEF

Company/ Issuer

Sector

Country

Update

RHBFIC View

MAHB

(RAM: AAA)

Aviation/

Logistics/

Transportation

MY

The company proposed to raise MYR1.32bn via rights issue primarily to fund the remaining 40% stake acquisition in Sabiha Gokcen International Airport, Turkey.

Neutral. As the rights issue is expected to cover the entire purchase consideration of EUR285m (MYR1.18bn) with no debt-financing required, we expect MAHB’s credit profile to remain strong. Its proforma gearing ratio post-rights issue may decline temporarily to c.0.66x (from 0.81 as at Dec-13), before being reversed to c.0.82 subsequent to the acquisition.