FW: RHB FIC Credit Market Update - 20/7/15

RHB FIC Credit Market Update - 20/7/15

20 July 2015

Credit Market Update

                                       

China’s Primaries Pick Up; NOL Denies Temasek’s Exit; Value in CREISP 5/20

REGIONAL                                                                                      

¨      Risk appetite recovered; primaries continued to pick up last week with the iTraxx AxJ IG was tightening a further 2bps to 104.9. UST yields were mixed with the long end 10y, 20y 30y tightened 2-4bps, while the shorter 2y, and 5y widened 1bp amid US CPI data rising to 0.3% MoM (prior: 0.4%) plus the resolution of the Greek debt story. In secondary markets, IG banks and corporate yields were flat, with O&G names such as PTTTB 22-42, KOROIL 19-30 and TOPTB 23-43 trading tighter. Chinese HY real estate names, notably SOHOCH 17-22, GRNHLHK 16-17 and LNGFOR 19-23 continue to see robust buying interest as investors continue to search for better yields. In the primary market, China Minsheng (A1/A/A) sold USD300m at 170bps (BTC 5.00x; IPT +190bps), taken up mainly by banks (80%) and fund managers (16%); Xinjiang Goldwind (A1) sold USD300m 3y bond at 160bps; while Tianjin Binhai (A3/A-/A-) sold USD300m and USD500m at 225bps and 245bps respectively; In the pipeline, we observed Bank of Communications (BOCOM, A2/A-), China Minmetals (A3/BBB+), Fukoku Mutual Life (A2/A/A-), China Oilfield (A3/A-/A), Beijing Capital Group (Baa2/BBB), HNA Group (N/A) are planning investor meetings today.

¨      Selling in NOL on rumours Temasek could sell stake. The short-to-mid SOR curve saw a parallel dip, with the 3y and 5y declining by 1bp to 1.68% and 2.17% respectively. We saw buying interest into CITSP, GALVSP and short-to-mid HYFSP while some selling was seen in NOLSP. NOL denied reports in the Wall Street Journal that Temasek was planning to sell its 65% majority stake in NOL.

MALAYSIA

¨      Quiet trading week ahead of festive weekend. Bond market were quiet last week amid the Hari Raya holiday-shortened week. We saw merely c.MYR1bn crossed in the corporate market throughout the week, spreading across duration. Among the top traded last week were AAA-rated Gas Malaysia 4/16 will broaden by 9bps to 3.931%; while long-dated Prasarana 3/30 increased 1bps to 4.595%, each on MYR60m trades. On the govvies, the MGS moved sideways, settling in between 3.25%-4.01% for the 3y-10y benchmarks while market is likely to remain soft in the early part of the week as investors extended their leave amid the festival and school holidays.

TRADE IDEA: SGD

Bond(s)	Cambridge Industrial Trust; CREISP 5/20 (yield: 3.72%; SOR5y+153bps)(-/BBB-/-)(O/S amount: SGD130m)
Comparable(s)	Mapletree Industrial Trust; MINTSP 3/19 (yield: 2.44%; SOR4y+47bps)(-/-/BBB+)(O/S amount: SGD125m)
Relative Value	We reiterate a preference for CREISP 5/20, which provides richer valuations while being one of the fundamentally stronger names in the weaker industrial REIT space. We believe that the REIT’s stronger operating and financial profile (as elaborated below) will buffer it against further inclement headwinds from the industrial space.
Fundamentals	We believe that Cambridge Industrial Trust has a stronger profile due to: 1)     Robust credit and operating profile. Even though the leverage profile at 36.4% is higher than the REIT average (32%), we take comfort that the fixed rate debt portion is higher at 85% (SGD REIT peers: 70%). In addition, it has an average operating lease profile of 4.2 years with occupancy rates of 95%, higher than the industrial REIT space of around 3.6-3.8y and 90% respectively. 2)     Able to weather inclement industrial headwinds. The industrial space in Singapore has been weaker, with May’s IP coming in -2.3%, the fourth consecutive month of decline in the industrial production numbers. 3)     Stable credit rating The REIT’s rating was recently affirmed as BBB-/Sta by S&P in May-2015, which should alleviate any rating risk as was recently suffered by another industrial REIT. Sabana Sukuk’s outlook was revised down to BBB-/Neg from BBB-/Sta by S&P in June-2015 due to a weaker operating profile.

CREDIT UPDATE

Company/ Issuer	Sector	Country	Update	RHBFIC View
Vallianz Holdings	O&G Services	SG	The vessel charterer won new contracts worth USD458m.	Underweight on credit. We continue to be underweight on this company due to its weak credit profile, with ST cash (USD22m) insufficient to cover its ST debt (USD102.8m). Nevertheless, it has pushed up its orderbook by around USD758m this month (it won a USD300m contract in mid-July), which is around ~4x of annual revenue, which we believe will enable the company to secure the necessary interim financing from banks to ensure its solvency in the short-term.