RHB FIC Credit Market Update - 21/4/15

21 April 2015

Credit Market Update

Chinese Easing Bodes Well for Credit; New Sinopec USD Deal; Remain Overweight on BLand 12/17

REGIONAL                                                                                      

¨      Demand for credits boosted as China released more liquidity from RRR cut; Sinopec offers new USD deal. Asian USD CDS premiums tightened 0.9bps to 108bps yesterday, reflecting stable sentiment after China’s easing of banks’ reserve requirements. UST rates opened mixed, with 1-3y rates up 1-3bps while 10y and 30y rates were 2-5bps firmer, although the curve subsequently bear steepened 0.5-4bps overnight. Meanwhile on credits, Bumi Serpong Damai drew over USD750m orders for its debut USD225m notes priced at 6.75%, inside its initial price target of 7%. Also, Doosan Heavy Industries sold USD500m 5y notes at T+95bps (IPT: T+115bps). In secondary markets, we noted softening in IG yields, with NOBLSP 15 widening 88bps, GRNLHK 16-17s yields rising 8-13bps, and OGIMK 23 (1MDB) rising 9bps. In the HY space, Kaisa bonds were down 5 price points as creditors were uncertain of the servicing of due coupon payments on its 2017 and 2018 bonds, which the developer announced today that it did not fulfill. The default on coupons could negatively affect secondary HY bond performance and appetite for new supply from Chinese developers. Adding to this, Moody’s yesterday downgraded HK-based property developer, Glorious Property Holdings, to Caa3 from Caa1 citing delays in releasing earnings results, weakening liquidity and consequently rising refinancing risks. In the primaries, Sinopec Group Overseas Development (2015) Ltd. is expected to sell USD notes today, guaranteed by China Petrochemical Corp (Aa3/AA-/NR), in 3 tranches: 5Y (IPT: T+145bps area), 10Y (T+160bps), and 30Y (T+180bps). Aside from this, Suncorp-Metway Ltd (A1/A+/A+) is planning a USD Reg S 5y paper.

¨      Interest seen in Real Estate/ Hospitality names. We observed flattening in the short-to-mid swap rates, with the 3y and 5y widening by +8.2bps (to 1.49%) and +6.5bps (to 1.87%) respectively. We saw more buying yesterday, with interest seen in mid-duration OLAMSP and real estate/ hospitality names like HPLSP, OUESP and UOLSP 17’ even as the SGD175m UOLSP 4/18 will be initiating trading today. In the primaries, International Healthway Corp (NR) printed SGD50m 2y at 7% while Golden Agri-Resources (NR) is issuing a SGD3y at initial guidance of around mid-5%.

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MALAYSIA

¨      IJM issued MYR200m; Good 1Q15 result from Public Bank (refer Credit Brief). Total activity in the corporate market breached MYR891m amid lackluster govvies flow. Investors were active in quasi-government bonds yesterday, particularly in mid-to-long end of the curve. 1MDB 5/39 led the trading chart on MYR100m trades, realigned 31bps downward to 4.919%, following 20% upward tariff adjustment for its proposed 50MW solar plant. Meanwhile, the sovereign market ended in mixed tone on thin volume of MYR1.78bn. Investors could stay cautious before the inflation print (22-Apr) and MPC meeting early next month (7-May). On the primary market, AA3-rated IJM issued MYR200m, 10y @ 4.9%.

TRADE IDEA: MYR

Bond(s)	Berjaya Land (BLand) 12/17 (AAA-FG) (Last trade: 10-Apr; Price: 100.55; Yield: 4.527%; 3y-MGS+118bps) (Amount O/S: MYR200m)
Comparable(s)	Putrajaya 1/16 (AAA) (Last trade: 16-Mar-15; Price: 100.97; Yield: 3.74%; 3y-MGS+43bps) (Amount O/S: MYR400m) Berjaya Land (BLand) 12/19 (AAA-BG) (Last trade: 20-Apr; Price: 101.45; Yield: 4.5%; 5y-MGS+86bps) (Amount O/S: MYR75m)
Relative Value	We remain overweight on BLand 12/17, which has tightened marginally (-7bps from 4.60%) since our initiation in our Credit Market Update dated 10-Feb. At 4.527%, it remains attractive with a potential pick up value of c.79bps over similarly-rated Putrajaya 1/16 despite BLand’s slightly longer maturity. Compared to BLand 12/19 (BG), BLand 12/17 was trading 3bps higher despite 2 years shorter maturity. Hance, we see room for further narrowing given its strong fundamentals with Danajamin’s guarantee.
Fundamentals	BLand 12/17 is supported by an unconditional and irrevocable guarantee from Danajamin. Jointly owned by MOF and Credit Guarantee Corporation Malaysia Bhd (majority-owned by BNM), Danajamin possesses the mandate to provide financial guarantees to Malaysian corporates to facilitate their access to the PDS market.