25 May 2015
Credit Market Update
Rallying
Subsides Ahead of Yellen’s Speech; SBREIT Priced at 3.45%;
Value
in YTLPI 10/24 MYR
REGIONAL
¨
Risk sentiment
remains benign; rallies subsided ahead of Yellen’s speech. Credit risk sentiment was relatively stable last
week, with the iTraxx AxJ IG ending flat at 105bps on Friday; notably,
Malaysia’s 5y CDS has tightened 3.2bps over the week, extending gains c.9bps of
over the past month. Secondary trading decelerated ahead of Yellen’s speech,
which clarified that the Fed remains committed to raising rates this year,
leaving treasury rates without any upside catalysts. Credit market activity was
nonetheless generally benign, where we noted yields tightening 1.8bps in the
banking sphere and stability in O&G markets against a slight decrease of
1.76% in Brent crude price to USD65.37/bbl. However, Chinese real estate yields
were 2bps wider on average amid a lack of upside triggers. Meanwhile, as
primary activity took a break, pipeline updates observed included China
National Bluestar (Baa3/BBB-/BBB-) and China Three Gorges Corp
(Aa3/A/A+) planning USD bonds, with the latter’s meetings commencing 27-May
onwards. This week’s US economic data lineup is heavy and includes durable
goods orders, PMI, new home sales, consumer confidence, jobless claims prints,
GDP and inflation. In China, we expect to see industrial profits as well as
manufacturing and non-manufacturing PMI prints.
¨
SOR tightened
on weaker US data; SBREIT priced at 3.45%. The 3y and 5y SOR curves both tightened 3bps to 1.59% and 2.03%
respectively due to weaker jobless claims and PMI data in the US. Secondary
market yields ended generally flat, with interest seen in EZRASP Pc15 and
YLLGSP 17, while SWIBSP 15-18 yields widened. Soilbuild Business Space REIT
(SBREIT, NR/BBB-/NR) priced its 3Y SGD100m at 3.45% (IPT+3.5%) and received
a BTC of 2.5x from 21 accounts comprising of asset managers/insurance (84%) and
banks/corporates (16%) within Singapore.
¨
MALAYSIA
¨ Strong corporate flows led by GREs; MBSB to issue
MYR900m Covered Sukuk; YTLPI’s financial profile stayed intact (credit brief). Corporate activity breached MYR1.2bn last Friday led
by quasi-government bonds – Rantau 9/15 fell 4bps to 3.485% on MYR190m trades;
while PTPTN 8/26 tightened marginally to 4.446% with MYR100m reportedly done.
Elsewhere, Malakoff complex moved sideways on combined MYR95m transacted.
Meanwhile, activity were quiet at MYR1.7bn in the govvies space as investors’
attention were shifted to the 11MP and inflation data. Focused were on short
tenure papers as MGS 7/16, MGS 9/16 and GII 2/16 accumulated RM794 M done in
the market. On the primary space, MBSB is targeting to issue MYR900m Covered
Sukuk on 29-May, ranging 1y-10y at coupon of 4.30%-5.20%.
TRADE IDEA: MYR
Bond(s)
|
YTL
Power International Bhd (“YTLPI”)
YTLPI
10/24 (RAM: AA1)
(Last trade: 15-May; Price: 101.06; Yield: 4.808%; 10y-MGS+ c.94bps) (Amt
O/S: MYR700m)
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Comparable(s)
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Sarawak
Energy Bhd (“SEB”)
SEB
7/24 (RAM: AA1) (Last trade: 27-Apr; Price: 102.45; Yield: 4.668%; 10y-MGS+
c.80bps) (Amt O/S: MYR600m)
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Relative Value
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We recommend to
hold on YTLPI 10/24 which continue offers pick-up of 14bps over
SEB 7/24, although the former subject to holding company risk. YTLPI continues to demonstrate solid financial position based on its
recent 3Q15 result, mitigates the structural subordination of YTLPI debts.
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Fundamentals
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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 MYR9.7bn, YTLPI net debt stood at MYR15bn (gearing: 2.4x, net
gearing: 1.4x) and net debt-to-EBITDA of 4.5x.
*All financial
figures as at Mar-15.
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