RHB FIC Credit Market Update - 30/7/15

30 July 2015

Credit Market Update

           

DBS Printed Covered Bonds in Cautious Market; Strong Bid for Ezion’s SGD120m New 5y; Value in Malakoff Power 2/21     

APAC USD CREDIT MARKETS                                                    

¨      Cautious market as credits ended flat; US GDP expected to rebound in 2Q15. Risk sentiments improved as Chinese equity markets recovered despite initial volatility with the iTraxx AxJ IG relatively flat at 109.3. Overnight, the UST widened as global stocks markets, commodities prices stabilized, and the FOMC statement providing little on the timing of the rate hike.

¨      Most IG Corporates were unchanged except for notable changes such as long ended CNOOC 32-39s and NOBLSP 18-20s. We observed that yields of internet companies like BIDU 18-25s widened 4-5bps following disappointing results while its peers such as TENCNT 15-25s and BABA 17-34s rose 3-4bps. In the HY space, Chinese HY real estate names saw strong interests on LNGFOR 19, COGARD 19-23s and GRNLHK 16s.

¨      On primaries, DBS Bank (Aaa/NR/AAA) priced its new USD1bn 3y Covered Bond offering at MS+37bp (IPT: MS+40bps), it was mainly up by banks (62%) and fund managers (19%) with a BTC of 1.37x.

¨      On economic data, US GDP figures are expected to be released today (consensus: 2.5%; prior -0.2%) followed by the jobs data.

SGD CREDIT MARKETS

¨      Good response to EZISP DBS-guaranteed note. We saw mild steepening in the short-to-mid curve, with the 3y and 5y closing at 1.77% (-1bp) and 2.21% (-0.75bps) respectively. Names like OLAMSP, BTHSP and CENCHI trade a couple of bps tighter, while selling was seen in the O&G space on names such as EZRASP, SWIBSP and VALSZP as Brent oil prices continued to stay lowly at c.USD54/bbl.

¨      In the primaries, Ezion Ltd (NR) printed a SGD120m 5y at a final price of 3.65%, around 35bps inside initial guidance, with good BTC at over 8x. The issuance is backed by DBS via a Committed Funding Backed Note (CFBN). This is the second bank-guaranteed issuance from the O&G services space this year, with the previous issuance by Logindo Samadramakmur (LEADIJ 2.93% 2/20) which had a Standby Letter of Credit (SBLC) from UOB. In lieu of the good response for this guaranteed-paper, more supply from the weaker O&G space can be expected.

MALAYSIA CREDIT MARKETS

¨      Handful of activities in Ringgit corporate bonds, volume surged to MYR1.2bn; Edaran SWM lead the pack for second day in a row. Ringgit bonds maintained the strong momentum from Tuesday with volume surging +45% as players looked for opportunities in the secondary market due to the lack of fresh issuances in July. Edaran SWM complex ended flat with total of MYR455m transacted. On FI, HLBB 4.8% 24c19 was the top gainer as yield narrowed 25bps to 4.711% with total of MYR100m changing hands, while Malaysia Airports perps – MAHB Pc24 gain 7 cents to 105.33 to yield 5.029% on MYR100m transacted.

¨      In govvies, MGS8/15 was the most active as yield rose 16bps to 3.263%, with total transaction of MYR2.687bn, or more than half yesterday’s volume of MYR5.007bn. MGS 3/17 move in the opposite direction, having seen yield fell 4bps to 2.999% in the mixed and counterintuitive movement. Benchmark curve closed mixed, with 3y ended at 3.15% (-1bp), 5y at 3.51% (+5bps), 7y at 3.84% (-2bps) and 10y at 3.98% (+1bp).

¨      West Coast Expressways (WCE) to meet investors on Monday, 3 August. In view of the upcoming MYR1bn Sukuk Murabahah issuance, WCE is arranging meetings with investors, together with Danajamin and Bank Pembangunan as the financial support providers.

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TRADE IDEA: MYR

Bond(s)	Malakoff Power  (“MPower”) MPower 12/21 (MARC: AA-) (Last trade: 22-Jun; Price: 102.55; Yield: 4.788%; 10y-MGS+ c. 81bps (Amount O/S: MYR500m)
Comparable(s)	YTL Power International (“YTL Power”) YTL Power 10/21 (RAM: AA1) (Last trade: 2-Jul; Price: 101.64; Yield: 4.481%; 10y-MGS+ c. 51bps (Amount O/S: MYR300m)
Relative Value	We see value in MPower 12/21 as it offers pick-up of 30bps over YTL Power 10/21. We opine that yields of MPower will tighten once Tanjung Bin Energy’s 1000MW power plant able to achieve actual commercial operations date (COD) eliminating construction risk.
Fundamentals	TBEI’s credit profile is supported by the following: 1)     Diversified portfolio of 5 independent power producers (IPP). MPower is the operator of 4 IPP in Segari, GB3, Prai Power, Tanjung bin Power and TBEI. These IPPs have a combined generating capacity of more than 4800MW. 2)     Stable cash and recurring cash generating capacity.  These IPPs have predictable stream of cashflows as they are backed by long term PPA agreements with TNB, the sole counterparty risks. TBEI’s credit positives are mitigated by: 1)     Construction risks. TBEI’s construction is still in progress; therefore it remains vulnerable to further delays in construction or cost overruns. Construction delay of the plant is still behind schedule and it may still miss it’s August 2016 COD deadline. Further delays and costs will definitely affect projected cash flows. 2)     High gearing profile. MPower’s consolidated gearing ratio remains high at 4.37x (end-Mar15) however, with the listing of MPower earlier in the year, its consolidated gearing is expected to decrease to 3.9x with the proceeds from the IPO being used to redeem its junior bonds.