RHB FIC Credit Market Update - 7/5/15

7 May 2015

Credit Market Update

SGD O&G Interest Returning; MYR Flows Surge Ahead of MPC Meeting; Yellen Comments on Low Yields                  

REGIONAL                                                                                      

¨      Yellen comments on low bond yields; CCB prices B3T2 notes at lowest-ever spread. Credit protection costs grew 1bp as the iTraxx AxJ closed at 106bps yesterday. Credit markets opened to a 2-8bps steeper UST curve, ahead of Yellen’s comments last night on long rates being overpriced, which suggests sharp corrections in bond yields may occur when the Fed raises its benchmark rate. We noticed rising US bond yields brought about some profit taking in APAC as well, with yields adding 3-4bps on average. Recent issues affected included the long-dated SINOPE and CNOOC 45s, which widened 9-10bps. Additionally, PETMK 25 was seen widening 10bps amid relatively unchanged Brent prices of USD67/bbl. Yesterday’s session also saw China Construction Bank (CCB, A1/A/A) raising USD2bn 10NC5 B3T2 notes priced at T+242.5bps (IPT: T+255bps), the lowest benchmark primary level recorded across comparable China T2 papers; and Kunlun Energy (A1/A+/A) debuting USD500m 5y and USD500m 10y notes priced at T+140bps (IPT: T+165bps) and T+165bps (IPT: T+190bps) respectively, each oversubscribed 5.8-6.0x. As for today’s session, Hsin Chong Construction Group (NR) is selling USD 3y notes at an IPT around 9.25% along with China Merchants Bank Co. (New York Branch) (Baa1/BBB+/BBB) will be selling USD 3y senior notes at an IPT of T+170bps. Moving ahead, the markets will look to US initial jobless claims tonight.

¨      O&G interest returning on better sentiment. The widening that started at the beginning of this week continued, with the 3y and 5y closing at 1.73% (+4.75bps) and 2.14% (+6bps) respectively, in tandem with Treasury movements. Even as Brent oil prices hover around USD67/bbl, we saw interest flow into the oil & gas sector on names such as KRISSP and EZRASP while two-way interest was seen in SWIBSP as investors assess Swiber’s recent partial (but tiny) buy-back of its perpetual. We also saw demand centered on property names like GUOLSP and HPLSP. In the primaries, Medco Energi Global (NR), an Indonesian onshore oil & gas production company, printed a SGD100m 3y at final price of 5.9%.

¨       

MALAYSIA

¨      Banking led PDS volume; focus on MPC meeting today. Corporate market registered strong flows of MYR1.1bn mainly led by banking bonds. Maybank IT1 9/68c18 topped the chart, ended the day 2.3bps tighter at 4.717% on MYR120m trades; while HLB LT2 12/20c15 and PBFIN NIT1 6/59c19 settled at 4.156% and 4.46% respectively. The MGS market stayed relatively quiet on below average turnover of MYR2.5bn. Bond yields closed flat to 2bps higher as investors stay cautious before MPC meeting and trade balance print today. Meanwhile, RAM expects Sarawak Energy’s financial profile to remain intact after taking into account the electricity tariff reductions effective in 1-Jun.

TRADE IDEA: MYR

Bond(s)	Genting Capital (Genting) 6/22 (AAA) (Last trade: 6-May; Price: 100.12; Yield: 4.40%; 7yMGS+ c.65bps) (Amount o/s: MYR500m)
Comparable(s)	Aquasar 7/22 (AAA) (Last trade: 09-Apr; Price: 102.40; Yield: 4.469%; 7y MGS+ c.72bps) (Amount o/s: MYR100m) PLUS 1/22 (AAA) (Last trade: 30-Mar; Price: 100.70; Yield: 4.279%; 7y MGS+ c.53bps) (Amount o/s: MYR700m)
Relative Value	We like Genting 6/22 which offers a pickup of 7-12bps over its AAA peers, Aquasar 7/22 and Plus 1/22. The scarcity of supply from the gaming sector could entice demand for the paper with potential tightening from current level.
Fundamentals	The debt facility of Genting Capital is unconditionally and irrevocably guaranteed by Genting Bhd. The latter’s credit profile is supported by its strong balance sheet. As at Dec-14, Genting’s gearing and debt-to-EBITDA is low at 0.24x and 1.9x respectively. In addition, the Group has ample cash balance and financial assets of MYR22bn compared to total debt of MYR12.5bn (i.e. net cash).