RHB FIC Credit Market Update - 14/4/15

14 April 2015

Credit Market Update

More Supply from China; MAS Stands Put on Policy; KLK Assigned AA1 for New Programme; Pickup Value in Anih 11/23 MYR

REGIONAL                                                                                      

¨      Market looks for direction; heavy buildup of Chinese supply. Asian USD CDS cost tightening persisted, reducing 0.8bps to 104bps yesterday. Overnight, the UST curve bull steepened, with rates declining 1-3bps across. Meanwhile, secondary credit yield movements were mixed, reflecting a lack of market catalysts and direction. In the IG space, we noted real estate names DALWAN 19, VANKE 18 and GRNLGR 24 yields compress 7-10bps, while financials ICBCAS 20 and OGIMK 23 (1MDB) ended 7-8bps tighter. In O&G, PETMK 22 tightened 1.3bps, while the rest of the PETMK complex closed flat or 1-4bps wider. Elsewhere, NOBLSP 15 and 20s continued to be pressured by negative research reports, closing 80bps and 11bps wider, respectively. In primary markets yesterday, Standard Chartered Plc (A2/A-/AA-) sold USD750m 3y bonds at +85bps (IPT: +90/95 area), USD250m 3Y FRNs at 3ml+64bps, USD1.25bn 5Y bonds at +90bps (IPT: +100bps area) and USD750m 10Y bonds at +130bps (IPT: +140bps area). Today, we expect new bond sales from multiple Chinese issuers including China Communications Construction Co. (A3/NR/A-) with USD Perps NC5 at an initial price target of 3.8%; Central China Real Estate (Ba3/BB-/NR) with 5NC3 USD notes (IPT: 9.125%); Formosa Plastics Corp (expected issue rating: NR/BBB+/NR) with 10y USD notes (IPT: 180bps); and Haitong International Finance Holdings 2015 Ltd (expected issue rating: NR/BBB/NR) with 5y USD bonds (IPT: T+245bps area). In the pipeline, Industrial Bank of Korea (Aa3/A+/AA-) is planning a global bond sale, while China Cinda (HK) Holdings Co. Ltd (NR/BBB+/NR) is meeting investors tomorrow on a USD issuance.

¨      MAS stands put; Potential issue from Medco Energi. The short-to-mid swap curve steepened yesterday, with the 3y narrowing by a stronger -3.5bps (to 1.51%) compared to the 5y with -2.4bps (to 1.85%). As expected, the market was largely quiet ahead of the MAS announcement, though some pickings were still seen in OLAMSP and TRIOIJ. MAS left its monetary policy unchanged, highlighting that core inflation remained subdued while continued moderate growth in 2015 was expected at between 2-4%. In the primaries, PT Medco Energi Internasional Tbk (NR), an oil & gas company that is also involved in power generation, is currently meeting investors for a planned SGD issuance.

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MALAYSIA

¨      Moderate credit flows; KLK proposed new MYR1.6bn debt programme. Sovereign bonds generally ended in the red territory yesterday as MYR breaching the MYR3.70/USD mark once again. Trading activity were relatively quiet at MYR2.2bn, skewing toward the GII space. At the end of the day, benchmark GII settled in between 3.394%-3.988% (flat to +1.4bps). Meanwhile, credit market started the week on positive tone amid moderate flows of MYR421m (vs YTD average of MYR485m/day). We saw tightening in some toll road names – notably, Anih complex fell 3bps-9bps to 4.287%-4.909% for maturity 11/18-11/27; while PLUS 1/25 inched 5bps lower to 4.539%. In the banking space, Kexim 7/15 narrowed 4bps to close at 3.726% post Moody’s positive outlook on Korea last Friday. Elsewhere, RAM assigned AA1 rating to KLK’s proposed MYR1.6bn Multi-Currency IMTN.

TRADE IDEA: MYR

Bond(s)	Anih 11/23 (MARC: AA)(Last trade: 10-Mar; Price: 104.16, YTM: 4.751%; MGS10y+88bps)(Amount O/S: MYR180m)
Comparable(s)	Kesas 8/23 (RAM: AA2)(Last trade: 18-Mar; Price: 101.39, YTM: 4.648%; MGS10y+78bps)(Amount O/S: MYR105m) Besraya 7/24 (RAM: AA3)(Last trade: 24-Mar; Price: 102.00, YTM: 4.771%; MGS10y+90bps)(Amount O/S: MYR60m)
Relative Value	Within the toll roads space, we see value in Anih 11/23 which was trading 11bps higher than similarly rated Kesas 7/23. In addition, Anih 11/23 is only trading at 2bps premium to the lower-rated and longer-tenure Besraya 7/24.
Fundamentals	Anih’s solid credit profile is supported by the following key aspects: 1)     Strategically aligned expressway comprised of KL-Karak, East Coast Expressway and KL-Seremban. Both KL-Karak and KL-Seremban registered high average daily traffic of combined 243k in 2014. 2)     Strong debt coverage. We expect Anih’s FSCR to be sustained above 2x during the tenure of the bond. In addition, the strict minimum post-distribution FSCR of 2.5x prevent Anih from aggressive dividend distribution, hence provide some protection to bondholders. 3)     Key risk: KL-Karak and ECE1 are scheduled for toll rate hikes in 2015 and 2020, which are subject to regulatory risk. Nevertheless, we view that the government will compensate Anih should the toll rate hikes are not implemented.