30 June 2015
Credit Market Update
Risk
Aversion Spreads; Asian Credits Generally Stable; See Value in BFB 1/22 MYR;
Senior Creditors Safe Under Singapore Bail-In Proposal
REGIONAL
¨
Risk aversion
spillover from Greece predicament; Asian credit appears resilient. Market risk aversion took a turn for the worse after
Greece failed to secure an agreement with creditors last Friday, where in Asia
the iTraxx AxJ IG surged 6.6bps to 114.8bps as a result. Regional equity
indices were also hit, particularly Shanghai’s Composite Index, which weakened
3.3% despite the People’s Bank of China’s rate cuts. On the other hand, USTs
drew safe haven flows in response and saw rates narrow 7-15bps overnight. In
addition, Asian credits were generally resilient, reflected by IG bank and
corporate yields shedding 2-5bps on average, while HY corporates erased just over
a week’s worth of gains as yields widened 15bps, not overdone in our view.
Nonetheless, we expect the market to adopt a cautious stance toward HY credit
at least until Greece’s crisis resolves, although we think the impact of such
an event should rightfully be contained within the Eurozone. Turning to the
primary front, there were no new USD sales yesterday and we expect new issues
will be held back until the dust settles. Key economic data coming out today
includes US consumer confidence index, Eurozone CPI and unemployment, and China
PMI data.
¨
Thinner flows
expected; Interest in IG names. The
short-to-mid curve marginally flattened, with the 3y rising by +0.25bps (to
1.72%) while the 5y fell -1.5bps (to 2.22%). Greek concerns dominated
headlines, with corporate flows on Monday treading carefully, and we expect
this trend to continue throughout this week before the release of the US June
NFP on 2-July and the Greek referendum results on 5-July. That said, we still
saw some interest towards the IG space, on names like SCISP and CHEUNG Perps as
well as SGREIT and SUNSP.
¨
MALAYSIA
¨
Tightening in
PDS market; 5y-GII well received at 2.2x BTC. Yields increased 4bps-6bps on the belly of the MGS
curve as investors remained sideline amid Greek crisis while Fitch’s decision
on Malaysia sovereign rating is expected to be released later today.
Nevertheless, the 5y-GII auction was well demanded with BTC of 2.2x (lower than
previous auction at 3.014x), averaging at 3.743%. Corporate market ended in
positive tone – notably, Noble 1/16 saw MYR45m tightened 12bps to 4.215%;
whereas TF Varlik fell 17bps to 5.696% on MYR30m trades.
TRADE IDEA: MYR
Bond(s)
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Bright
Focus Bhd (“BFB”)
BFB
1/22 (RAM: AA2) (Last trade: 17-Jun; Price: 100.38; Yield: 4.732%; 7y-MGS+ c.73bps)
(Amount O/S: MYR70m)
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Comparable(s)
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ANIH
11/22 (MARC: AA) (Last trade: 15-Jun; Price: 104.13; Yield: 4.56%; 7y-MGS+
c.56bps) (Amount O/S: MYR160m)
KESAS
10/22 (RAM: AA2) (Last trade: 5-Jun; Price: 101.815; Yield: 4.456%; 7y-MGS+ c.37bps)
(Amount O/S: MYR90m)
KESTURI 12/22 (MARC:
AA-) (Last trade: 24-Jun; Price: 97.58; Yield: 4.638%; 7y-MGS+ c.64bps)
(Amount O/S: MYR120m)
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Relative Value
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In toll road sector,
we see value in BFB 1/22 which offer 17bps-27bps pick up over similarly
rated ANIH 11/22 and Kesas 10/22, while is also trading 9bps cheaper than
1-notch lower rated Kesturi 12/21. Nevertheless, we
note that the smaller BFB 1/22 tranche could constrain its liquidity.
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Fundamentals
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BFB’s credit profile
is supported by the following:
1)
Strategically aligned expressway. The toll road is the
fastest route that connects KL city center to Putrajaya/Cyberjaya and KLIA.
As at 9M14, BFB has solid traffic base with average daily traffic (ADT) of
109k, although c. 5% below the base case projected traffic of 115k for 2014.
2)
Strong debt servicing capability. Based on our
estimation, BFB needs c. 116k ADT in between 2015-2033, in order to service
the debt obligations (compared to base case projection of average 214k). At
flat ADT of 116k, we estimate the FSCR to average at 3.1x. Hence, we view
that BFB able to absorb significant traffic shock from the initial
projection.
3)
Seri Kembangan Link set to boost collection. The construction
of Sri Kembangan Link (SK Link) is ahead of schedule (progress as at Jun-14
at 66% vs scheduled timeline of 42%). Expected
to be completed in Jul-16 (while we saw the banner stated ‘to be completed by
Nov-2015” from recent sighting”), SK Link is estimated to contribute about 9%
to total revenue (based on the initial year ADT forecasted by traffic
consultant).
4)
Regulatory risk. We opine that the government to
honour concessionaires in the event of delay in toll rates hike as shown from
past records.
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CREDIT IDEA
Company/
Issuer
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Sector
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Country
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Update
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RHBFIC View
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Singapore Banking Sector
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Banking
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SG
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Monetary
Authority of Singapore (“MAS”) published a consultation paper in regard to
resolution regime to financial institutions. Among the proposal are:
1.
The statutory bail-in regime be
applied to unsecured subordinated debt/loan (excluding senior debt), issued
and contracted after the effective implementation date.
2.
MAS has the power to convert into
equity or write down contingent convertible instruments and contractual
bail-in instruments.
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The
exclusion of senior debt obligations from the bail-in resolution maintains
their payment priority and is positive news for senior noteholders. There
will be no impact to Basel 3-compliant subordinated debt as they already
incorporate loss-absorption features.
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YTL Power International
(AA1/P1, RAM)
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Power
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MY
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YTLPI
may receive MYR700m from Petronas on overpaid gas, based on gas supply
agreement in 1994, after London arbitrator ruled in favour of YTLPI.
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Neutral.
The amount only represent c.2.8% of YTLPI total debt as of March-15, but
could cushion the group’s full year’s finance cost. The more pressing part
for YTLPI would be on the extension of PPA for its 808MW Paka and 404MW
Pasir Gudang Power plant which should expire by Sep-15 and early 2016
respectively. Nonetheless, short term liquidity is well buffered, with cash
of MYR9.7bn vs ST debt of MYR3.55bn. YTLPI 8/18 last done at 4.229% on
24/6, current MTM at 4.223% (MGS+104bps).
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