FW: RHB FIC Credit Market Update - 5/2/15

5 February 2015

Credit Market Update

Strong Demand for USD Primaries; Moody’s Affirmed MY Positive Outlook

                                                                                                          

REGIONAL                   

¨      Strong demand for new deal; Tencent sold dual-tranche deal totaling USD2bn. USTs rallied (-2bps to -4bps) following ECB’s decision to limit Greek debt as collateral, alongside lower-than-expected US ADP employment change (actual: 213k, consensus: 223k). The Asian secondary space saw real estate names SUNHUN 22, SWIRE 23 and HYSAN 23 widening amid continued Kaisa concerns; while some O&G names like SINOPE 23-24 and CNOOC 23 tightened on higher oil prices. Meanwhile, China's lowering of reserved requirement ratio by 50bps may lead to support for Chinese FI names today. Elsewhere, yields generally widened with trades focused on long papers such as STSP 31, TEMASE 39-42 and TNBMK 24. Credit protection costs continued edged lower as iTraxx AxJ narrowed 2bps to 109bps. On the primary front, Tencent Holdings (A3/A-/NR) received c.USD17bn orders for a total of USD2bn bonds, led by interest from US investors (45-46% of orders). It printed USD1.1bn 5y at T+162.5bps and USD900m 10y at T+205bps. Meanwhile, Export Import Bank of India (Baa3/BBB-/BBB-) printed USD500m 5y at T+155bps. In the pipeline, Qingdao City Construction (NR/BBB/BBB+) may price USD benchmark 5y at 400bps area.

¨      Interest centered on property names. The short-to-mid SOR curve steepened, with the 3y tightening by -0.7bps (to 1.26%) while the 5y widened by +0.5bps (to 1.63%). We saw interest centered on names exposed to China property such as YLLGSP, CENCHI and GUOLSP on news of Sunac buying 49.3% stake in Kaisa while interest could be further spurred today as China cut its reserve requirement ratio (RRR) by 50bps last night. On the primary space, Indonesian-developer PT Ciputra Property (NR) printed a SGD65m 3y at 5.625%, 37.5bps inside initial guidance.

MALAYSIA

¨      MGS gained after Moody’s reaffirmation; Quiet PDS market. MGS continue its positive momentum yesterday post Moody’s Malaysia positive outlook reaffirmation. We saw heavier volume of MYR6.7bn (vs YTD avg of MYR4.1bn) with benchmark yields edging 1-9bps lower. The 10y-MGS and 10y-GII were actively traded on combined flows of MYR2.1bn, ended the day at 3.762% (-3.8bps) and 4.040% (-5.5bps). Meanwhile, corporate space was quiet on thin trading activity of MYR219m (YTD avg: MYR349m). Top traded were GRE names such as Danga 4/15 tightened to 3.631% (-29.5bps, MYR50m); Aquasar 7/17 exchanged hands at 4.145% (-8.78bps, MYR20m); and BPMB 9/21 widened 4bps to 4.209% (MYR20m).

TRADE IDEA: USD

Bond(s)	Oversea-Chinese Banking Corporation Limited (OCBCSP) OCBCSP 4% 24c19 (A2/BBB+/A+) (price: 103.88; ytc: 3.10%; ytm: 3.35%; Z+175bps) (O/S Amt: USD1.0bn) OCBCSP 4.25% 24 (A2/BBB+/A+) (price: 105.14; ytm: 3.59%; Z+178bps) (O/S Amt: USD1.0bn)
Comparable(s)	-
Relative Value	We recommend taking profit on OCBC 4% 24c19 and switching to OCBCSP 4.25%. Since our recommendation to add on 5-Sep 14, OCBC 4% 24c19 has tightened 72bps in yield for a total return of 3.67%. We currently favour a switch to the OCBC 4.25% 24 bullet B3T2 for a pickup in yield-to-maturity of at least 24bps and no extension risk.
Fundamentals	We continue to like OCBC for the following key factors: 1)     Second-largest bank in Singapore, with 15% and 17% shares of system loans and deposits respectively. 2)     Strong insurance businesses in both Singapore and Malaysia via Great Eastern Holdings Ltd; 3)     High asset quality at a current NPL of 0.65% which has outperformed local peers (industry NPL: 0.91%); 4)     Robust capitalization and sound liquidity as evidenced by a Tier 1 ratio of 13.20% (industry: 13.5%) and loan-to-deposit ratio of 86% (industry: 87%); and 5)     High likelihood of systemic support, based on its significant size and scale. We also note that the Monetary Authority of Singapore has yet to propose statutory bail-in as part of a bank resolution framework. This means creditors up to potentially the senior rank remain more likely to benefit from systemic support at this point. *all financial data as of 30-Sep 14

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	RHBFIC View
Bharti Airtel Limited (Bharti)	Telcos	IN	Bharti’s 3QFY3/15 revenue grew 5.83% YoY to INR232.17bn while EBITDA rose 9.65% YoY to INR77.86bn. EBITDA margin at 33.5% from 32.4% in 3QFY3/14. Group debt/EBITDA also improved slightly to 2.16x from 2.22x in the previous quarter.	We remain overweight on Bharti considering the financial results and strong sustained growth in India and South Asia, which was 11.7% YoY for 9MFY3/15, which are attributable to its dominant position in India and ongoing deleveraging strategy. We also noted continued subscriber and revenue growth (2.5% YoY) from Africa-based operations. However, 9MFY3/15 earnings quality was dampened by ongoing competition with incumbent, MTN Global.
China Banking System	Banks/FIs	CN	The People’s Bank of China (PBOC) cut banks’ reserve requirements by 50bps to 19.5% of total deposits on 4-Feb 15.	Mild Positive. We see the 50bps cut as a small step to sustaining credit growth, although we acknowledge that this does not necessarily raise credit demand. We also think banks are still maintaining a high level of central bank reserves, given that the 19.5% requirement is high compared to past levels: 6% from 1999-2003 and a peak of 21.5% in 2010.
Gamuda (AA3)	Construction	MY	Proposed New MYR5.0bn ICP/IMTN programme. IMTN may be guaranteed by FIs with minimum rating of AA3 or equivalent.	Neutral. We believe part of the bond proceeds could be utilized for its land banking efforts and to refinance MYR601m of short-term debts. To recall, Gamuda recently acquired 1,787 acres in Kota Kemuning and Kuala Langat with total purchase price of MYR1.18bn. The Group’s gearing as at Oct-14 stood at 0.48x. A full drawdown of the facility could increase the gearing to 1.26x and debt/EBITDA to 7.21x (Industry average: 0.63x, 5.45x). Pending details on proceed utilization, we shall revisit the overall impact to its credit profile.