RHB FIC Credit Market Update - 22/4/15

22 April 2015

Credit Market Update

Tencent Raised to A by S&P; New Sinopec Priced Aggressively as Oil Consolidates above USD60; Bharat Eyeing USD Deal

REGIONAL                                                                                      

¨      New Sinopec multi-tranche deal draws combined orders of USD15bn; China property bonds resilient post-Kaisa event. Asian USD CDS premiums declined 0.5bps to 107bps yesterday. Credit markets were focused on the new Sinopec deals including USD2.5bn 5y notes priced at T+125bps (IPT: T+145bps), USD1.5bn 10y at T+145bps (IPT: T+160bps) and USD800m 30y at 4.1% (IPT: T+180bps); the notes were oversubscribed 2.8x, 3.2x and 4.1x respectively. In the IG space, secondary trading was softer, with yields ending a touch wider. We noted CCB 24c19 B3T2 widening 4.7bps, possibly on news of incoming USD T2 supply from the issuer itself; we recap that China Construction Bank (A1/A/A) is currently selecting arrangers a new USD T2. Elsewhere, we saw yields rising 5-10bps in EIBKOR 20-22s OGIMK 23 (1MDB) and GRNLHK 16-17s. Despite the Kaisa’s coupon default on its 17-18s, China property developer bonds were resilient, IG and HY yields closing flat on average. Elsewhere, S&P raised its ratings on Tencent Holdings Ltd to A from A-, following from Moody’s upgrade of the tech firm to A2 from A3 in March; the market appears to have already priced in the upgrade as TENCNT complex yields stayed flat. On the primary front, we also note Bharat Petroleum Corp Ltd (Baa3/NR/BBB-) planning for meetings tomorrow on a potential USD offering.

¨      Selling bias seen in high-grade and GGRSP. The short-to-mid swap curve continued to flatten, with the 3y widening by a larger +4.3bps (to 1.53%) while the 5y saw similar movements of +2.25bps (to 1.89%). We saw a general selling bias in the market, led by higher grade papers like HDBSP and TEMASE and also short-dated GGRSP ahead of the print of its new issue. In the primaries, Golden Agri-Resources (NR) printed a 3y SGD125m at 5.5%, with BTC around 1.4x. Looking ahead, investors will be eyeing the SG Mar CPI (consensus: -0.5%; previous: -0.3%) to be released tomorrow.

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MALAYSIA

¨      Corporate yields narrowed amid lackluster flows; No immediate credit impact on Noble’s allegations according to RAM. We saw better flows in the govvies space yesterday after the reopening of the MYR3.5bn SPK 7/22 which ended with encouraging book-to-cover of 2.32x, average yield of 4.038%, or 6.5bps tighter than the same tender in February. Subsequently, market saw late buying in the afternoon session, focusing on the medium-to-long tenure paper – notably in the 10y-MGS benchmark which inched 2bps lower to 3.858%. Meanwhile, corporate market generally closed higher amid relatively quiet trading activity of MYR364m; although we also note mild widening in some bank senior such as AISL 9/17 and HSBC Amanah 3/20. Overall, investors continue to trade heavily in quasi-government bonds such as DanaInfra, Prasarana and PTPTN. On the primary market, UOBM to issue 10nc5 B3T2 (rated AA1) at IPT of 4.6%-4.75% (expected size: minimum MYR500m). Elsewhere, RAM views that the recent allegations by Muddy Waters LLC against Noble Group (AA2/Sta) have no immediate impact on the credit profile, at this juncture.

TRADE IDEA: USD

Bond(s)	SINOPE 4/20 (Aa3/NR/NR) (Price: 99.576; YTM: 2.591%; CT5+125bps) (Amt o/s: USD2.5bn)
Comparable(s)	CNOOC 1/21 (Aa3/AA-/A+) (Price: 108.1; YTM: 2.70%; Z+115.2bps) (Amt o/s: USD1.5bn) CNPCCH 11/19 (Aa3/AA-/A+) (Price: 100.9; YTM: 2.48%; Z+106.9bps) (Amt o/s: USD700m) PETMK 3/20 (A1/(P)A-/(P)A-) (Price: 101.2; YTM: 2.43%; Z+98.85bps) (Amt o/s: USD1.25bn)
Relative Value	We opine that the newly issued SINOPE 4/20 at T+125 (IPT+145) has been priced relatively rich against similarly-rated CNOOC 21 after adjusting for duration differences and fair against both CNPCCH 19 and the lower-rated PETMK 20, with SINOPE being financially weaker in comparison.
Fundamentals	Notwithstanding, we are comfortable with SINOPE's overall credit profile given: 1)     Potential deleveraging while Debt/EBITDA is at 2.5x (above S&P's target of 2.1x in 2014 on lower oil prices), proceeds from the partial divestment of of its marketing unit, which raised c.USD17bn, has potential to improve the ratio to c.2.2x-2.3x in 2015. 2)     Positive business outlook due to its integrated business - the low oil price to be balanced by its refinery business and greater margins from high prices for high-quality diesel. Management also indicated to step up cost controls and reduce capex. 3)     Support by Government through strong linkage (100% ownership by the Government) and strategic role in economy’s o&g sector.