RHB FIC Credit Market Update - 13/7/15

13 July 2015

Credit Market Update

                                       

Greece and China GDP to Drive Market; Hold on BLAND 12/17

REGIONAL                                                                                      

¨      Risk aversion eased prior to Greece being handed 3 day deadline; HY regained ground reflecting Chinese equity rebound. Asia credit market sentiment last Friday recovered from losses incurred at the start of the week, after a rebound especially in the Shanghai Index rising 4.5%, which improved investor appetite seen in the iTraxx AxJ IG declining further 5.7bps to 109.2. Today credit markets may open weaker as Greece has been given three days to pass austerity measures and its EU prospects. In the secondary market, IG bank seniors and corporate bonds saw yields traded 3-5bps wider to 2.18% and 3.18% respectively. On the other hand, HY credits rebounded as yields dropped 14bps on average to 7.31% led by mostly Chinese real estate names like AGILE 17-20 and EVERRE 18-20. Meanwhile, we noticed wider yields for O&G names like PTTTB 18-42 and KOROIL complex. In the week ahead, key economic data and events to monitor include China’s June trade balance and money supply today, followed by 2Q GDP (consensus: 6.8% YoY; prior: 7.0% YoY) on Wednesday.

¨      SOR bear steepened ahead of the Sunday’s Greece-deliberation. The SOR 3y, 5y and 10y widened 5-8bps to close at 1.67%, 2.17% and 2.81% respectively on Friday as uncertainties of a Grexit rose ahead of Sunday’s Euro Summit. However, Sunday’s Summit was later cancelled, leaving the Eurozone to allow until Wednesday for the Greek parliament to approve reforms to satisfy a bailout from creditors. Secondary trading saw wider yields noticeably in HDBSP complex. Meanwhile, better buyers were seen for CHEUNG 18 and HKLSP 15 benefitting from a second day recovery in Chinese equities, as well as IG bank CBAAU 27.  

MALAYSIA

¨      Putrajaya printed MYR900m at 4.03%-4.48%; Investors stayed sideline in credit market. MGS continue the recovering trend last Friday with benchmark yields inched 1bps-5bps lower as investors were optimistic on Greece’s reformation proposal which includes harsher austerity terms, hence lowering the odd of Grexit.  Nevertheless, market likely to remain volatile this week amid uncertainty in Greece which was given 3 days to satisfy ECB’s requests before any additional bailout/potential Grexit. Meanwhile, activity were quiet in the corporate space with merely MYR343m crossed. Manjung 11/19 topped the chart on MYR100m trades, settling flat at 4.064%. Followed by PTPTN 3/24 and 2/30 ended the day at 4.323% (+0.1bps) and 4.625% (+1.6bps) respectively with combined MYR80m exchanged hands. On the primary front, Putrajaya Holdings printed MYR900m, separated across 5 tranches – 4y@4.03%, 6y@4.23%, 7y@4.31%, 8y@4.41% and 9y@4.48%. Elsewhere, Malaysia’s IPI improved by 4.5% y-o-y in May (from 4.0% in Apr).

TRADE IDEA: MYR

Bond(s)	Berjaya Land (BLand) 12/17 (AAA-FG) (Last trade: 9-Jun; Price: 100.23; Yield: 4.652%; 3yMGS+139bps) (Amount O/S: MYR200m)
Comparable(s)	Quill Retail Mall, QRMSB 3/17 (AAA-BG) (Last trade: 8-Jun; Price: 100.02; Yield: 3.986%; 3yMGS+72bps) (Amount O/S: MYR15m) Senari 8/18 (AAA-FG) (Last trade: 22-Jun; Price: 101.02; Yield: 4.265%; 3yMGS+100bps) (Amount O/S: MYR200m)
Relative Value	We remain overweight on BLand 12/17, which offers 39bps-67bps over QRMSB 3/17 and Senari 8/18. At 4.652%, BLand 12/17 offers 62bps pickup over our proprietary AAA-curve, hence we view that there is tightening opportunity.
Fundamentals	BLand 12/17 is supported by an unconditional and irrevocable guarantee from Danajamin. Jointly owned by MOF and Credit Guarantee Corporation Malaysia Bhd (majority-owned by BNM), Danajamin possesses the mandate to provide financial guarantees to Malaysian corporates to facilitate their access to the PDS market.

CREDIT UPDATE

Company/ Issuer	Sector	Country	Update	RHBFIC View
Sentoria Group (AAA-BG)	Property	MY	Sentoria Group established MYR169m banking facilities, mainly to refinance its MYR120m MTN programme	Neutral. The most recent trade on Sentoria was on 10-Jun - Sentoria 7/21 at 4.939%
Agricultural Bank of China (A1/A/A)	Banking	CN	Fitch upgraded Agribank’s viability rating (VR) at BB (from BB-) while reaffirming senior rating at A/Stable on very high support probability by PBOC.	Neutral. AGRBK 2.75% 5/20 has been lagging so far, quoted at T+135/120, 2.85%. With recent RRR cut targeting on agricultural sector, we reckon margins at this bank to remain challenging.