FW: RHB FIC Credit Market Update - 12/5/14

12 May 2014

Credit Market Update

Quiet APAC Market Amid Subdued Risk Appetite; Mixed Performance from SGD New Issuances; MYR Activities Rose Marginally        

REGIONAL                      

¨      Quiet APAC credit market; USTs trade marginally wider. The JACI Composite stayed broadly unchanged at 256.0bps as with investors’ interest flowing into the IG (tightening 0.2bps) with outflows from the HY (broadening by 0.7bps). Over in China and HK, IG yields were broadly tighter with recent issues such as CCAMCL 5/19 trading c.15-20bps wider since reoffer with general yield tightening across board seen in papers like DAHSIN 2/20 (-c.4bps to 4.090%), FUBON 11/20 (-c.3bps to 4.199%) and CHIOLI 5/24 (-c.5bps to 5.915%). The 10y benchmark USTs traded marginally wider by 0.72bps to 2.62% even as the Fed and FOMC signaled a continued dovish stance moving forward. US econ data continued to be positive with the US March Wholesale Inventories up 1.1% (expected: 0.5%). For the upcoming week, key data releases includes US - retail sales advance (13-May), inflation and initial jobless claims (15-May); China - industrial production, retail sales (13-May).

 

¨      The APAC primary market has generally been quiet with Bharti Airtel printing a REG S USD 10y (expected ratings: Baa3/BBB-/BBB-) at initial price guidance of T+300bps. In the HY space, Maoye International is also marketing a REG S USD 3y (expected ratings: Ba2/BB/NR) at initial guidance of 8%.            

¨      SGD markets saw better buying. Over in Singapore, market saw better buying with yields tightening c.1-3bps, with activity seen on papers such as BNKEA 4/15, DBSSP 37c17, VALISP 4/16 and SWIBSP 4/15. Last week’s SGD issuances received mixed responses from secondary markets with RICKSP 5/17 trading c.10-12bps wider while GALVSP 5/17 traded by c.12-15bps tighter since reoffer.

¨      The SGD primary market was quiet on Friday with many market participants expected to be away on the long weekend as Wesak Day falls on Tues 13-May.

     

MALAYSIA

¨      MYR credit volume holds; attention skewed toward long-dated GRE and power sector names. Last Friday’s credit activity remained strong at MYR460m, 3% above MYR445m the day before, benefitting from strong MGS activity as well. In addition, investors were mostly active in long-end bonds, particularly in DanaInfra and recently-issued TNB WE sukuk. Yields among the top-traded papers generally inched higher, in line with steepening in MGS rates on the same day, which in turn caused credit spreads to narrow sharply (c.11bps for 5y AAA and AA spreads). Active names of the day were Prasarana 3/24 up 2bps to 4.57% (since 6-May 14) on MYR67m traded, DanaInfra 10/33 flat at 5.16% (since 7-May 14) on MYR60m traded, DanaInfra 4/24 up 2bps to 4.55% (since 7-May 14) on MYR50m traded, DanaInfra 4/21 up 3bps to 4.38% (since 7-May 14) on MYR45m traded), and Kesas 10/14 up 1bp to 3.66% (since 5-May 14) on MYR40m traded. Meanwhile, we saw buying bias in DanaInfra 4/29 and 2/23, which respectively narrowed to settle at 4.93% (-8bps since 8-Apr 14) and 4.45% (-7bps since 8-May 14). On upcoming economic data this week, we expect to see better YoY industrial production numbers released at noon today, while the 1Q14 GDP data to be released this Friday is also expected to be slightly better. Seeing better numbers in these indicators should translate well for local credits.

¨      Senai Desaru Expressway Berhad (Senai Desaru) (MARC: BBB) issued MYR1.89bn Sukuk Ijarah on Friday. Senai Desaru issued the MYR1.89bn sukuk in 10 tranches, with coupon at 0.5% and tenures ranging from 25-34 years.

TRADE IDEA

Bond	G8 Education; GEMAU 5/17 (c. 4.65%) (NR) (SOR+c.367bps)
Comparable(s)	Overseas Education; OELSP 4/19 (c.4.62%) (NR) (SOR+c.295bps)
Relative Value	GEMAU 5/17 offers a pick-up of c.35-45bps. If OELSP 4/19 (which is currently trading at c.4.62%) is modified to accommodate the difference in duration, an indicative fair value of GEMAU 5/17 would be in the region of 4.2%-4.3%.
Fundamentals	We like GEMAU 5/17 due to: 1) second largest childcare operator in Australia with 4.5% market share, implying growth potential; 2) low counterparty credit risk on prepayment from Singapore and Australian parents as well as subsidies from the Australian government; and 3) consistent and stable fundamentals over the past 3 years with stable FY2013 financial indicators such as ROA at 8.2% (2012: 7.8%), EBITDA/ Interest Exp at 10.9x (2012: 12.1x) and Total Debt/ Total Assets at 0.24x (2012: 0.18x).