RHB FIC Credit Market Update - 29/4/15

29 April 2015

Credit Market Update

CNOOC Joins the O&G Primary Frenzy as Bharat Petroleum Set to Price Benchmark Deal; UOBM B3T2 Fairly Valued

                                                                                               

REGIONAL                                                                                      

¨      CNOOC Raises USD3.8bn in 3 Tranches; Bank of India Prints USD750m Senior. The iTraxx AxJ was virtually unchanged at 106bps. Credit markets opened to a steeper UST curve, the 2y and 10y USTs up 2.6bps and 3.5bps respectively, ahead of the 5y auction yesterday and US consumer confidence which dropped to 95.2 (consensus: 102.2; actual: 101.3). Secondary activity was sidelined as new bond sales swept the market’s attention. Leading in the primaries were CNOOC’s (Aa3/AA-/A+) new USD1.5bn 5y bonds priced at T+128bps (IPT: T+150bps), USD2.0bn 10y at T+160bps (IPT: T+180bps) and USD300m 30y at 4.2% (IPT: T+170bps). Elsewhere, Hong-Kong based IG O&G player, Binhai Investment Co Ltd (Baa3/NR/BBB-) sold USD200m 3y notes at T+245bps (IPT: T+280bps), after securing a whopping USD3.5bn in orders. In the financials space, Bank of India raised USD750m 5y senior notes (Baa3/NR/NR) priced at T+185bps (IPT: T+205bps), the proceeds of which will be used to fund the bank’s 26 overseas branches. On ratings updates, S&P cut ratings on both HK-based developer, Glorious Property, and coal distributor, Winsway Enterprises, to “CCC-“ and “Selective Default” respectively. Meanwhile, Moody’s stated that it believes China’s regulatory easing will support demand on property transactions and alleviate pressure on prices. With Labour Day (Friday) cutting the week short, secondary activity will remain suppressed as investors await guidance from today’s US GDP print and Thursday’s FOMC statement.

¨      Interest slanted towards property names; Raffles Education retap at par. There was slight broadening in the short-to-mid SORs, with the 3y and 5y ending wider at 1.51% (+0.75bps) and +1.86% (+0.5bps) respectively. In the secondary space, we saw demand interest on property names such as short-dated GUOLSP and WINGTA, continued buying on UENVSP and some selling on OUESP papers. We opine flows may be slightly sidelined today ahead of the FOMC statement tomorrow, though there are no big policy changes expected. In the primaries, Raffles Education (NR) is retapping the market for RLSSP 5.9% 5/18 at price guidance of 100.

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MALAYSIA

¨      RHB priced MYR500m B3T2 at 4.75%; Investors focus in mid-to-long duration. RHB has successfully printed the subdebt at 4.75% for MYR500m 10nc5 B3T2 (AA3); and Gas Malaysia printed MYR130m, 1y@3.95% (AAA). We note tightening in some the existing subdebts in the secondary space – i.e RHB B3T2 7/24c19 inched 15bps lower to 4.73% on MYR30m trades; while CIMB LT2 12/25c20 settled at 4.701% (-15bps). Elsewhere, IJM 4/20 tightened 13bps to close at 4.391% as market was unfazed by MARC’s negative outlook on the credit last week. Overall, total activity remained strong with MYR741m reportedly transacted as investors focused in mid-to-long duration papers. On the govvies front, MGS curve moved 1bps-3bps higher as investors probably took profit ahead of long weekend and stayed cautious before the FOMC meeting ending tomorrow.

TRADE IDEA: MYR

Bond(s)	United Overseas Bank (Malaysia) Bhd UOBM 10NC5 B3T2 (AA1) (yield: 4.65%; MGS5y+105bps) (O/S amount: MYR1.0bn)
Comparable(s)	Malayan Banking Bhd (Maybank) Maybank 1/24c19 B3T2 (AA1) (last date: 23-Apr 15; price: 100.87; yield: 4.644%; MGS5Y+104bps) (O/S amount: MYR1.6bn) Maybank 5/24c19 B2T2 (AA1) (last date: 27-Apr 15; price: 98.73; yield: 4.598%; MGS5Y+99bps) (O/S amount: MYR2.1bn)
Relative Value	We view the new UOBM 10NC5 B3T2 to be fairly valued at 4.65% against peers, with the closest comparable subordinated bonds being Maybank’s 24c19 B3T2 and 24c19 B2T2. While UOBM and Maybank B3T2 subdebt have similar structures are both substantial in size, Maybank’s existing subdebt are callable a year earlier in 2019. Notwithstanding the loss-absorbing features of B3 capital, we think systemic support likelihood for Maybank is higher given its position as Malaysia’s largest commercial bank and its domestic origins.
Fundamentals	We view UOBM as having a solid credit profile based on the following considerations: 1)     High likelihood of parental support, from Singapore-based United Overseas Bank Limited (UOB), given that UOBM is a wholly-owned subsidiary of the former. Notably, UOBM operations make up c.12% of UOB’s consolidated loans and contribute c.15% to consolidated profits before tax; 2)     Robust capitalization metrics, reflected by its T1 and CAR ratios of 14.5% and 17% respectively; 3)     Healthy asset quality and coverage levels, with NPL recording below industry averages at 1.57% (industry: 1.67%) and loan loss coverage at 104%. *Financial data as at Dec-14