RHB FIC Credit Market Update - 26/3/15

26 March 2015

Credit Market Update

Robust Take-up for New Offers in Astra and Beijing Capital; Hold WHEELK 9/21 SGD

REGIONAL                                                                                      

¨      Strong demand for Astra Sedaya, Beijing Capital – both priced identically at T3+200bps. CDS rose with iTraxx AxJ inching wider to 113.0bps (+1.2bps). In the secondary space, we saw mixed flows with HK/CN names widening marginally, such as DALWAN 18, BABA 19-21 and CNPCCH 21. Elsewhere, better buying was seen, led by FI senior papers such as BBLTB 20, SBIIN 17 and UOBSP 20. In the overnight session, UST yields rose 4-5bps despite weaker durable goods orders (actual: -1.4%, consensus: 0.2%) and dovish Fed Evan’s remarks (that it will be ‘appropriate’ to delay rate hike until 2016). On the primary front, Astra Sedaya Finance (Baa3/NR/BBB-) received more than USD2bn for USD300m 3y bonds at 2.898% yield (initial guidance of T+225bps area) while Beijing Capital (Baa2/NR/NR) saw orders exceeding USD5.5bn for USD600m 3y bonds at T+200bps (initial guidance of T+230bps area). Meanwhile, Dalian Wanda (Baa2/BBB+/BBB+) is expected to meet bond investors from 1-Apr.

¨      Interest slanted towards quality property/ REIT names. We saw a flattening in the short-to-mid swap curve, with the 3y and 5y SORs narrowing by -5.8bps (to 1.73%) and -7.3bps (to 2.03%) respectively, with the 3y/5y spreads hovering at a tighter level of around 30bps, levels not seen since mid-2013. We saw interest tilted towards better quality property/ REIT names such as FCLSP, CITSP and SUNSP while oil & gas names like EZRASP and VALSZP traded a couple of bps wider. Looking ahead, the SG Feb Industrial production numbers are expected to deteriorate to -2.2% (prior: 0.9%), which would reinforce concerns of a slower 1Q2015 growth. In the primaries, Gallant Ventures (NR) is printing a SGD3y at initial price of low 7%.

¨       

MALAYSIA

¨      Ringgit bonds gain 0.05%; Danga printed 5y MYR2bn at 4.10%. It was a pretty active market in MYR yesterday with govvies and corporates seeing MYR4.91bn and MYR1.1bn transacted, respectively. Quasi-GG was the most active which formed almost 70% of total trades – PASB 2/19 closed 8.8bps lower to 3.87% while PRASARANA 3/19 tightened by 6.2bps to 3.879% with MYR280m changed hands cumulatively. Elsewhere, high-grades gain marginally, namely Suria KLCC 12/24 added 2cents to 101.88 at 4.489%, while Putrajaya 9/23 inched 2bps lower to 4.399%. On the FIs, PBBank 11/23c18 rose 2.6bps to 4.548% while TF Varlik was seen traded at 5.748% for total amount of MYR18m. On the primary front, Danga Capital successfully priced its 5y MYR2bn at 4.10%, with reported BTC of 1.3x.

TRADE IDEA: SGD

Bond(s)	WHEELK 9/21 (ytm: 3.90%; SOR+c.175bps; outstanding: SGD350m)(NR)
Comparable(s)	WHARF 7/21 (ytm: 3.51%; SOR+c.135bps; outstanding: SGD260m)(NR)
Relative Value	We advocate a preference for WHEELK 9/21, which provides an attractive entry into the Wheelock-Wharf space, whereby Wheelock owns 55% in Wharf. The paper has widened marginally by 8bps since first initiated in our Credit Market Update (dated: 16-Feb). WHEELK 9/21 currently trades at a spread premium of around 40bps compared to WHARF 7/21 (1y spread average: 22bps)
Fundamentals	We like Wheelock & Co after considering the following: 1)     Robust fundamentals. The property player exhibits a fundamentally strong credit profile if compared to its SGD property peers, with LTM Debt/ EBITDA at 7.1x (peers: 9.3x) and EBITDA Interest Coverage at 10.1x (peers: 9.3x). 2)     Reorienting towards HK property developer. Wheelock has previously been more of a property investment company, but it has been making concerted moves towards property development (revenue sources are currently close to equal between property development and investment). This can be seen via Wheelock’s sale (HKD5.8bn in Aug-2014) of Crawford House to Wharf to free up cash flow.  3)     Property headwinds expected when Fed raises interest rates. HK’s property grew in 2014 by around 45% YoY in transaction volume, with growth expected to hold (though at a slower pace) in 1H2015. Nevertheless, due to HK’s exposure to the Fed rates (via its peg to the USD), the rising interest rates environment will have a sizeable impact on the property market there.   *Sun Hung Kai Properties, Henderson Land Dvlp, Capitaland, City Developments, Cheung Kong (Hldg), The Wharf, Keppel Land