RHB FIC Credit Market Update - 31/3/15

31 March 2015

Credit Market Update

China Easing - Housing Ruling Provides Another Support for Asian Credits; Hold YTLPI 24 MYR

REGIONAL                                                                                      

¨      Credits gained alongside tighter CDS; China eases housing rules. iTraxx inched tighter to 111.0bps (-1.7bps). Credit yields declined, led by real estate names such as FRANSH 19, YUEXIU 18 and CHIOLI 19-20. We expect CN property names to benefit from China’s relaxation of the minimum downpayment requirement for second home buyers (from 60% to 40% for buyers with outstanding mortgages). Meanwhile, China Cinda Asset Management’s benefits from higher non-performing loans and liquidity issues, with the company almost doubling the holding of distressed debts to CNY206.8bn in 2014 (2013: CNY114.8bn). CCAMCL 19 tightened a couple of bps following Friday’s results, where net income rose 32%. Meanwhile, we also saw gains on commodity names such as NOBLSP 20, CITPAC 20-23 and PETMK 19. On the primary front, Hong Kong Telecommunications (Baa2/BBB/NR) sold USD500m 10y bonds at T+178bps, 17bps inside IPT. Looking ahead, we expect trading to tilt firmer today following overnight decline in UST yields (-1bps to -3bps). Investors may watch out for consumer confidence index tonight (expectedly flattish), ahead of ADP employment change and ISM manufacturing tomorrow.

¨      Upward shift in SORs; pickup in credit activity amid new bond sales. The SGD swap curve experienced an upward shift of 5-6bps, despite the UST curve flattening 1-4bps last Friday; we observed 3y and 5y SORs rise 6.3bps and 5.4bps to 1.81% and 2.11% respectively. In the secondary market, saw yield compression in EZRASP 15 and Pc18, GALVSP 17, and TRIOIJ 16-17. Meanwhile, O&G names like SWIBSP 15-18s ended the day wider. On new issues, Ascendas Hospitality Trust (NR) sold 5y SGD75m notes at 3.30% mainly to Singapore-based investors (97%), 81% of which comprised fund managers and/or banks. In addition, Hotel Properties Limited (NR) announced 5y SGD papers (expected size: SGD50m) with a final pricing guidance of 3.88%.

¨       

MALAYSIA

¨      Lackluster MYR bond market; MGS 9/22 priced at average yield of 3.795%. Ringgit bond market was relatively quiet yesterday on MYR317m and MYR1.3bn trading volume in the corporate and govvies space respectively. We saw Prasarana and PASB moved sideways settled at 3.863%-3.897% for tranche maturing 2019. Also seen was Sime Darby 11/16 tightened 3.3bps to 3.801% despite negative outlook by Fitch yesterday. On the sovereign front, MGS benchmarks ended in mixed tones, tilted towards negative territory as MYR depreciated to 3.711/USD yesterday. The new 7.5y MGS 9/22 were sold at averaged yield of 3.795% on relatively lower bid-to-cover (BTC) of 1.8x. At closing, the 3y, 7y and 10y-MGS rates inched 0.6-2bps higher to 3.346%, 3.785% and 3.901% respectively.

¨      On the primary side, DanaInfra printed MYR3.2bn on 5 separate tranches – 7y (4.15%, MYR600m), 10y (4.33%, MYR300m), 15y (4.61%, MYR300m), 25y (4.95%, MYR1bn) and 30y (5.05%, MYR1bn). Elsewhere, MahSing issued MYR540m of Pnc5 bond at 6.8% on private placement. YTD total issuances increased to MYR17.2bn, still about 20% less than MYR21.6bn recorded in the same quarter last year.

TRADE IDEA: MYR

Bond(s)	YTL Power International Bhd (“YTLPI”) YTLPI 10/24 (RAM: AA1) (Last trade: 26-Mar; Price: 100.15; Yield: 4.93%; 10y-MGS+ c.103bps) (Amt O/S: MYR700m)
Comparable(s)	Sarawak Energy Bhd (“SEB”) SEB 7/24 (RAM: AA1) (Last trade: 27-Mar; Price: 102.08; Yield: 4.719%; 10y-MGS+ c.82bps) (Amt O/S: MYR600m)
Relative Value	We reiterate our recommendation on YTLPI 10/24 which has tightened 27bps since our recommendation in 2-Mar. We continue to see value in YTLPI 10/24 which offers pick-up of 21bps over SEB 7/24, although the former subject to holding company risk. We view that the structural subordination of YTLPI is mitigated by the strong financial profiles of YTLPI and YTL Group.
Fundamentals	YTLPI’s credit profile is supported by the following: 1)     Stable business profile. YTLPI’s key profit generators are from its utilities assets in Singapore (Power Seraya) and UK (Wessex Water). Each of the assets has been contributing MYR500-800m to the Group’s PBT for the last 3 years. 2)     Strong balance sheet. Supported by huge cash and deposit balances of MYR11.2bn, YTLPI net debt stood at MYR12bn (gearing: 2.4x, net gearing: 1.3x) and net debt-to-EBITDA of 8x. *All financial figures as at Dec-14.