RHB FIC Credit Market Update - 25/2/15

25 February 2015

Credit Market Update

Credit Extending Gains; Value in New Issues: SCC 2/22 MYR and STSP 6.5Y SGD

                                                                               

REGIONAL                   

¨      Credits extended gains. Credit protection costs was marginally narrower with iTraxx AxJ tilting lower to 102.0bps (-0.3bp). Yields tightened across the IG USD space, with papers like SUNHUN 22-23, PTTEPT 42 and CNOOC 22-24 traded in the real estate and O&G space. In the HY space, Parkson (PRKSON) 18 widened several bps following Moody’s one-notch rating cut to Ba3 (Ba3/sta; BB-/sta; BB-/neg) on weakening financials. Meanwhile, USTs gained (-5bps to -8bps) following Yellen’s neutral to mildly dovish remarks, which include her comments that the future removal of ‘patience’ by Fed should not be an indication of a rate hike. On the primary front, hydropower company China Three Gorges (A1/A/NR) is eyeing a debut USD bond offering. Looking ahead, tonight’s US new home sales is expected to decline, potentially supporting further gains in USTs.

¨      Quiet session for SGD credits, flows mixed. The 3y and 5y SORs narrowed yesterday by 6.13bps and 6.50bps respectively, ahead of Yellen’s congressional testimony. In secondary credits, there was mixed interest, with names like AAREIT 19 and GUOLSP 16 seeing favourable bids, SWIBSP complex remaining flat and yields for bank names, BCHINA 15, BNKEA 15 and SHNHAN 16s, ending wider. On the primary front, Singapore Telecommunications Limited (Aa3/A+/A+) priced a 6.5y SGD150m Reg S MTNs at 2.72% (SOR+51.75bps).  

MALAYSIA

¨      Short-to-mid MGS rallied before the maturity of MGS2/15; GovCo led corporate flows. The local govies rallied with activity quadrupled to MYR4.26bn (from MYR1.06bn on Monday) before the new issue of 5.5y-GII 8/20. GII 7/22 topped the volume chart on MYR810m trades, settled 1.7bps lower to 3.957%. Meanwhile, benchmark MGS 10/17 and 10/19 fell 5-6bps to 3.407% and 3.627% respectively amid the upcoming maturity of MGS 2/15 this coming Friday (27-Feb). We saw better flows of MYR380m in the corporate front, mainly fueled by MYR120m trades on GovCo 2/21, which widened by 0.9bps to 4.248%. BGSM 10/22 tightened 0.9bps to 4.997%. 

TRADE IDEA: MYR

Bond(s)	Sabah Credit Corporation (SCC) 2/22 (RAM: AA1) (Issued Date: 16-Feb; Price: 100; Yield: 4.9%; 7y-MGS+ c.112bps) (Amt O/S: MYR130m)
Comparable(s)	MBSB 12/22 (RAM: AA1) (Last trade: 30-Jan; Price: 99.99; Yield: 4.8%; 7y-MGS+ c.102bps) (Amt O/S: MYR70m) TAQA 3/22 (RAM: AA1) (Last trade: 13-Feb; Price: 99.78; Yield: 4.687%; 7y-MGS+ c.91bps) (Amt O/S: MYR650m)
Relative Value	We like the newly issued SCC 2/22 given its attractive spread of 10bps and 21bps relative to similarly rated MBSB 12/22 and Taqa 3/22. At 4.9%, SCC 2/22 is 25bps cheaper than our proprietary AA1-curve.
Fundamentals	1.     Systemic support highly likely. SCC primarily benefits from the high likelihood of systemic support from the State Government of Sabah (which owns 100% of SCC), given the extension of letters of support for SCC’s debt securities and expressed intention to maintain full ownership of SCC throughout their debt tenures. 2.     Healthy standalone financials. On a standalone basis, SCC exhibits improved financials as seen with its healthy Tier 1 and total capital ratios of c.18.4% and c.19.8% respectively as at end Dec-13, and improved gross NPL ratio of 4.1% (FYE12: 7%). Nevertheless, concentration personal-financing segment, which could also pose downside risk on its GIF ratio in the future.

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	RHBFIC View
Singapore Telecommunications Limited (SingTel/STSP) (Aa3/A+/A+)	Telcos	SG	Priced a 6.5y SGD150m Reg S MTN at 2.72% (SOR6.5Y+51.75bps). Closest comparable is the STSP 3.4875% 4/20 which was last trading at 2.16% (SOR5Y+19.9bps).	We like the new issuance for its decent pickup of 42bps and 17.9bps in terms of yield and SOR spread over the STSP 4/20, after adjusting for an added tenor of around 1 year and 5 months. Although the new issue is smaller at SGD150m versus SGD600m for the older issue, the attractive spread compensates for this.