RHB FIC Credit Market Update - 19/6/15

19 June 2015

Credit Market Update

                                       

Credits Supported Post-FOMC; No Resolution to Greece Woes Yet; Hold Genting 6/22 MYR

REGIONAL                                                                                      

¨      Market little changed, credits supported post-FOMC; still no Greece resolution in sight. The iTraxx AxJ IG ended just a little wider by 0.8bps at 112.4bps, reflecting minimal change to credit risk following a dovish Fed announcement and the ongoing monitoring of Greece’s debt situation. Greece’s meeting yesterday with Eurozone officials ended poorly and prompted leaders to arrange an emergency summit next Monday, pushing the former closer to the much-discussed possibility of a “Grexit” scenario. Meanwhile, secondary credit markets started off well with UST rates 1-5bps lower. IG bank yields were notably firmer, tightening 6bps, while corporates shed 3bps, led by power names (-4bps) and real estate (-2bps). O&G yields were 1.8bps firmer, while Brent crude prices traced up 0.6% to USD64.26/bbl. On the HY front, there appeared to be better risk appetite for real estate bonds as yields narrowed 8bps in general. China Shanshui 7.5% 20 recovered to 84.867/11.764% after downgrade by S&P two days ago. In the news, Moody’s placed China Merchants Bank Co. Ltd on review for upgrade for a reassessment of government support for the bank. On the primary front, Agricultural Bank of China (A1/A/A) re-opened USD200m guaranteed 2017 notes priced at 2.1%, while department store operator, Lifestyle International Holdings Ltd (Baa3/NR/BBB-), is planning to sell USD 10y notes at an initial price target of T+245bps. Up ahead, China Life Insurance Co. (Aa3/AA-/A+) will commence roadshows from 22-Jun onwards for a USD Reg S subdebt issuance.

¨      SOR rallied on less hawkish Fed. The SOR 3y and 5y tightened more than 10bps to 1.617% and 2.081% respectively while the 10y tightened 6bps to 2.695% reacting to the less hawkish FOMC meeting. Relatively better buying was seen in secondary trading favoring defensive names like PSASP 15-20, SPSP 15-32 and NUSSP 18-20; while yields widened for O&G names like KRISSP 18 and SWIBSP 16-18.

¨                   

MALAYSIA

¨      Govvies and Ringgit rallied on dovish Fed remark; PDS moved sideways. Govvies ended on positive tone amid dovish FOMC stance, while the Ringgit also strengthened to 3.70 level against the greenback. The buying sentiments had concentrated on the 1-3-year tenors with the 3y MGS 10/17 fell by 10bps to 3.18%. Nevertheless, the main focus yesterday was the 7-year benchmark MGS 9/22 re-opening which was successfully auctioned at average yield of 4.002% on BTC of 1.95x. Corporate flows stayed lackluster with sub-MYR350m total volume. Top traded bonds moved sideways – Malakoff Power 12/19 saw MYR60m crossed at 4.599% (-0.3bps) while Danga climbed 2bps upward to 4.668%.

TRADE IDEA: MYR

Bond(s)	Genting Capital (Genting) 6/22 (AAA) (Last non-oddlot trade: 26-May; Price: 99.95; Yield: 4.428%; 7yMGS+ c.42bps) (Amount o/s: MYR500m)
Comparable(s)	PLUS 1/22 (AAA) (Last trade: 10-Jun; Price: 100.74; Yield: 4.269%; 7yMGS+ c.26bps) (Amount o/s: MYR700m) MACB 12/22 (AAA) (Last trade: 29-May; Price: 102.23; Yield: 4.33%; 7yMGS+ c.32bps) (Amount o/s: MYR1,500m)
Relative Value	We retain our hold recommendation for Genting 6/22 which continues to offer a pickup of 9bps and 16bps over the similarly-rated MACB 12/22 and Plus 1/22 respectively. The scarcity of supply from 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 FY14, 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 MYR25bn compared to total debt of MYR12.5bn (i.e. net cash). *All financial figures as at end-Dec 14.