RHB FIC Credit Market Update - 7/8/15

7 August 2015

Credit Market Update

           

All Eyes on Jobs in US; Westport Tariff Revised 30% Upward; SEB Priced 10y and 20y at 4.75% and 5.28% 

APAC USD CREDIT MARKETS                                                    

¨      Market eyes US job report as little change seen in CDS. Credit protection costs via the iTraxx AxJ IG inched up slightly to close at 113.0 as the Chinese equity markets remains in negative territory. Separately, the UST fell across the curve led by the 10y shedding 5bps to close at 2.22% as large US Corporates sparked a selloff in the US equity markets with a string of disappointing results.

¨      Buying interest in IG bonds. The average IG Corporates yields tightened 1-2bps to 3.18%, while the HY space ended flat at 8.7%. We saw buying interests in HK/CN IG names such as GRNLGR 24s, CNOOC 23-25s, HKLSP 25, SINOPE 24, CNPCCH 19s BABA 24, TENCNT 25 and BIDU 22-25s. The notable underperformer in the IG space was TIAMK 22, as political noise in Malaysia persists. Additionally, NOBLSP redeemed USD735m of its bonds, which led gains in NOBLSP 18s with yields tightening 41bps. On a separate note, the commodity trader is expected to release its 2^nd quarter result next Monday.

¨      Primaries remain quiet, eHi Car Services (NR/BB-/BB-) postponed its plans for a USD 5NC3 bond citing on uncertain market conditions.

¨      Job data to set the next direction. Jobless claims for week ending Aug 1 was at 270k (consensus: 272k; prior: 267k), which remains healthy. Tonight, NFP (consensus: 225k; prior: 223k) and unemployment data (consensus:5.3% ;prior: 5.3%) could signal slower pace of hiring but anything above 200k could be deem healthy. Focus in China over the weekend will be on July import/export and trade balance, CPI and PPI numbers.

SGD CREDIT MARKETS

¨      Interest seen in Chinese HY names; Market on two-day break for SG50 celebrations. We observed a marginal dip of less than 1bp in the short-to-mid curve, with the 2y and 5y closing at 1.54% and 2.23% respectively. Yesterday saw buying interest in Chinese HY names such as CENSUN, GRCHAR, PCRTSP and CENCHI. Market is out today and on Monday due to Singapore’s 50^th Independence Day celebrations.

MALAYSIA CREDIT MARKETS

¨      Mixed flows in credit amid bearish govvies. Few names exchanged hands in the corporate market amid thin trading session with merely MYR273m trading volume. Notably, we saw mixed flows on PASB complex – PASB 6/18 widened 6bps to 3.881% while PASB 11/20 narrowed to 4.071% (-5.6bps) on combined MYR55m trades. Elsewhere, we note good performance in long-end GSNK, where tranches 6/23 and 6/27 tightened 29bps to close at 4.852% and 5.201% respectively.

¨      Meanwhile, sovereign bond ended in red territory yesterday as trading sentiments strained by weaknesses in Ringgit, oil and CPO prices. At the end of the day, the 5y-10y MGS rose 5bps-6bps to 3.71%-4.09%; although 3yMGS settled flat at 3.28%. Investors to look forward for foreign reserve data today, which is expected to fall below USD100bn.

¨      On the primary front, Sarawak Energy (“SEB”) priced MYR1.5bn Sukuk, separated into 2 tranches – 10y (4.75%, 10yMGS+64bps) and 20y (5.28%, 20yMGS+95bps). This would increase total bond outstanding of SEB to MYR8.5bn out of its MYR15bn Sukuk programme. Elsewhere, Kuala Lumpur Kepong printed MYR1.1bn, 10y @ 4.58%.

¨      Other corporate development, container tariff for Westport to be revised upward by 30%, implemented in 2 phases – Phase 1 (+15% effective Sep-15) and Phase 2 (+15% effective Sep-18). Meanwhile, MBSB’s 1H15 result dropped by 51% on higher provisioning (Credit Brief).

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TRADE IDEA: SGD

Bond(s)	FCTSP 4/19 (yield: 2.9%; SOR4y+ 85bps) (BBB+/-/-) (amt out: SGD60m)
Comparable(s)	SGREIT 2/21 (yield: 3.15%; SOR6y+78bps)(BBB+/-/-) (amt out: SGD100m)
Relative Value	We continue to like FCTSP 4/19, which was last mentioned on 16 July-15. FCTSP 4/19 is a nice duration play while offering a pick-up of 85bps above SOR4. While there was little movement in the bond since our previous call, FCTSP 4/19 could also benefits from roll-down effect next year.  Nonetheless, FCTSP could be deem less liquid relative to SGREIT while the latter offers better absolute yield.
Fundamentals	Frasers Centrepoint Trust has strong fundamentals and outlook due to:  1)     Robust fundamentals. From its recent 3QFY6/15 results, Fraser’s continues to exhibit a better credit profile than its SG REIT peers, with Debt/ Assets at 29% (peers: 32%), Total Debt/ EBITDA at 6.15x (peers: 9.3x) and EBITDA Interest Coverage at 6.2x (peers: 4.6x). 2)     Strong occupancy rates.  FCT enjoys a strong occupancy rate (close to 99%), which should offset some risk emanating from its average lease duration of around 2 years.     3)     Resilient to fall in tourist arrivals and cyclical retail spending. Singapore’s tourism arrivals have been lackluster for Jan-May 2015, with arrivals lower by 4.1% and 5.8% compared to similar periods in 2014 and 2013. Fraser’s six departmental malls are located in suburban Singapore, which we believe are less exposed to the tourism dollars unlike Orchard-based malls (SGREIT malls include Ngee Ann City and Wisma Atria).

CREDIT UPDATE

Company/ Issuer	Sector	Country	Update	RHBFIC View
Australia and New Zealand Banking Group (“ANZ”) (M/S/F: AA2/AA-/NR)	Banking	AU	ANZ to raise AUD3bn capital through AUD2.5bn share placement and AUD500m Share Purchase Plan.	Maintain marketweight. We like the capital raising plan which will increase pro-forma CET1 ratio by 0.78% to 9.3% (from 8.6% as at 30-Jun). This will accommodate the higher capital requirement due to the recent increase of average risk weight for residential mortgage from 16% to 25% by Jul-16, which would reduce ANZ’s CET1 by 0.56%, estimated based on AUD271bn housing loan as at FY14.
Malaysia Building Society Bhd (“MBSB”) (RAM: A2)	Banking	MY	YTD 2Q15 NP decreased 51% to MYR210m due to higher allowance for loan loss. Gross NPL inched higher to 6.9% (1Q15: 6.6%), loan loss coverage improved to 81% (1Q15: 79%). Loan-to-deposit remain constrain at 105%.	Maintain underweight.  MBSB’s credit metrics remained unsatisfactory with weak asset quality.
Westports Holdings Bhd  (“Westports”) (MARC: AA+)	Transportation/Logistics	MY	Westports received approval from the Ministry of Transportation (MOT) to raise tariff rates by 15% for containers under Phase 1 by September 2015 and another 15% under Phase 2 in 2018.	Maintain Neutral. The tariff hike would only result to c.5% increase to the bottomline, according to our equity team. Group’s leverage is expected to increase to c.0.75-0.85x from 0.66x (FY14) as a result from CT8 investment which costs around MYR1.0bn (which is largely debt-funded), therefore we expect the tariff increase to support its cash flows (FY14: MYR614m).