RHB FIC Credit Market Update - 14/7/15

14 July 2015

Credit Market Update

                                       

Risk Aversion Eased on  Greek  Deal  Progress; New Putrajaya Prints Appear Fair

REGIONAL                                                                                      

¨      Markets mixed on Greek deal; O&G names fall on softer oil prices. Asia credit market reacted mixed despite Greece & EU progressing on bailout terms. The regional stock markets such as the Shanghai Index and Shenzhen CSI300 reacted positively, rising 2.39% and 2.60% respectively. After the ‘Agreekment’, the iTraxx AxJ IG declined further by 1.8bps to 107.4 as investor’s sentiment improved. We note that IG corporates and banks bond yields traded 4-5bps wider to 2.18% and 3.15% respectively. Notable movements include NOBLESP 18-20 and FRANSH 17-21, narrowing 4-12bps and 2-4bps respectively. On the other hand, HY credits traded relatively flat at 8.9%, despite Chinese real estate corporate yields tightening 7-8bps to 9.6%. Furthermore, as Brent crude declined 1.5% to USD57.8/bbl, IG and HY O&G yields widened 3-4bps to 3.38% and 9.30% respectively, as Iran approaches the final discussion stage of its nuclear deal, heightening oversupply issues. New to the pipeline is Korea Gas (AA3/A+/AA-) with USD500m 10y at IPT+125bps, while China’s Goldwind New Energy (Expected rating A1) and China Minsheng Investment (Expected rating: A1) plan to meet investors today.

¨      SOR curve bear steepened; 2Q GDP slower than expected; NCLSP and ROXY 18s printed. The SOR 3y, 5y, and 10y widened 3-5bps to 1.70%, 2.21%, and 2.87% respectively. We saw better bids for NCLSP 15-19, CITSP 16-19 and YLLGSP 17; while yields widened for SWIBSP 16-18 ahead of its 1-for-2 share consolidation, KEPSP 20 before it announced a SGD85m liftboat order this morning, and OLAMSP 19-22. 2Q GDP slowed to 1.7% YoY (consensus: 2.4%; prior: 2.8%) and declined 4.6% QoQ (consensus: -1.5%; prior: 4.2%) dragged mainly by manufacturing contracting 14% QoQ. Consensus expects May retail sales released tomorrow to contract 3% YoY (prior: 5%). Primary markets will see SGD75m from NCLSP 6.5% 20/7/18 and SGD60m from ROXY 4.5% 20/7/18 sold today.  

MALAYSIA

¨      AAA yields inched higher. Trading activities were rather quiet yesterday where only MYR383m and MYR1.6bn transacted in the corporate and govvies market respectively. Credit yields generally inched higher, skewing toward the AAA-space. Notably, Gas Malaysia 4/16 and Cagamas 10/25 broadened 7bps-9bps to 3.931% and 4.461% respectively. MGS benchmark yields remained supported as market sentiment improved following dovish rhetoric from the Fed last Friday; while Greece’s Prime Minister Tsipras verbally agrees to ECB’s reformation demands, although still subject to the Greek parliamentary voting by 15-Jul before a bailout can be negotiated. Market likely to remain quieter due to the Hari Raya holiday shortened week as well as cautious trading amid uncertainties in Greece. In the local front, investors to focus on the 30y-MGS reopening with auction closing today, with the WI suggesting the auction could settle at the mid-4.70s% level.

TRADE IDEA: MYR

Bond(s)	New Putrajaya Issuances: Putrajaya 4y (AAA) (Price: 100; Yield: 4.03%; MGS+61bps) (Amount O/S: MYR150m) Putrajaya 6y (AAA) (Price: 100; Yield: 4.23%; MGS+50bps) (Amount O/S: MYR200m) Putrajaya 7y (AAA) (Price: 100; Yield: 4.31%; MGS+43bps) (Amount O/S: MYR150m) Putrajaya 8y (AAA) (Price: 100; Yield: 4.41%; MGS+49bps) (Amount O/S: MYR150m) Putrajaya 9y (AAA) (Price: 100; Yield: 4.48%; MGS+51bps) (Amount O/S: MYR250m)
Comparable(s)	Aman 7/19 (AAA) (MTM Price: 98.61; MTM Yield: 4.07%; MGS+64bps) (Amount O/S: MYR110m) Aman 5/21 (AAA) (MTM Price: 101.46; MTM Yield: 4.25%; MGS+53bps) (Amount O/S: MYR310m) Aman 5/22 (AAA) (MTM Price: 99.91; MTM Yield: 4.30%; MGS+44bps) (Amount O/S: MYR80m) Aman 10/23 (AAA) (MTM Price: 99.01; MTM Yield: 4.39%; MGS+47bps) (Amount O/S: MYR205m) Aman 7/24 (AAA) (MTM Price: 97.33; MTM Yield: 4.44%; MGS+47bps) (Amount O/S: MYR130m)
Relative Value	We view that Putrajaya new issuances appear fair, which were priced tightly in relative to AAA-rated Aman Sukuk complex. The new issuances were also priced at 14bps-17bps tighter to our proprietary AAA-curve, supported by its strong fundamentals and relatively better liquidity in the secondary market.
Fundamentals	Putrajaya Holdings (“PJH”) credit profile is supported by stable income flows from government. PJH’s income is mainly derived from subleasing of the government buildings. In addition, PJH’s strength is further supported by its strong shareholders – KLCC Holdings (wholly owned-by Petronas) and Khazanah. We view the fundamentals of PJH as highly attractive, even in comparison to peers within the AAA complex.