National Savings Bank

l Global Research l Important disclosures can be found in the Disclosures Appendix All rights reser ved. Standard Char tered Bank 2014 research.standardchartered.com Nikolai Jenkins, CFA +65 6596 8259 [email protected] FICC Research Standard Chartered Bank, Singapore Branch Victor Lohle, CFA +65 6596 8263 [email protected] FICC Research Standard Chartered Bank, Singapore Branch Credit Alert | 2 September 2014 National Savings Bank – New senior issue The relatively small (USD 250mn) 5Y 144a bond should receive a healthy bid Pricing could tighten to 5.4%/360bps (Z-spread) in the current market context However, we think the Sri Lankan quasi-sovereign banks trade slightly rich vs. the sovereign We see medium-term fair value closer to 5.6%/380bps (Z-spread), though we see no immediate catalyst for spread widening Summary National Savings Bank (B+/BB-) is coming to the market with a 5Y USD-denominated senior bond. Initial price guidance is in the 5.5% (374bps Z-spread) area. With the issue size capped at USD 250mn, and given its 144a format, the bond should be easily absorbed by investors. In the current market context, we think the new deal should price at 5.4% YTM/360bps Z-spread. We arrive at this value by using the NSBLK 18 (indicative mid-YTM of 4.97% and Z-spread of 349bps) and adding 10bps for the one-year extension. However, we think the NSBLK 18 is slightly rich versus the sovereign (see Figure 2). This is primarily due to the bond’s high-beta nature and strong demand for yield pick- up in the current environment of low spreads. At current levels, the NSBLK 18 trades 78bps (Z-spread) wide of the SRILAN 19N (currently indicated at 4.37% YTM/271bps Z-spread). We think the NSBLK 19 should trade 110bps wide of the SRILAN 19N given its relatively weak standalone credit profile (see Sri Lankan banks – Straw into gold ). As a result, our medium-term fair-value estimate for the bonds is 5.57%/381bps, although we do not see an immediate catalyst for spreads to widen. (See SRILAN complex – Value emerges for our views on the sovereign and quasi- sovereign banks.) We outline our fundamental views on the banks below. Figure 1: Sri Lanka spreads have tightened YTD Z-spread (bps) Figure 2: Quasi-sovereign banks versus the sovereign Z-spread (bps, LHS) versus rating (RHS) – 3Y-4Y duration bucket Source: Standard Chartered Research *The quasi-sovereign is 35% foreign-owned; **the quasi-sovereign is essentially an off-budget vehicle created as an extension of government spending; Source: Standard Chartered Research SRILAN 20 BAKCEY 17 BAKCEY 18 NSBLK 18 SRILAN19N 270 320 370 420 470 520 570 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Sovereign spread Quasi- sovereign bank differential Rating (RHS) AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B 0 100 200 300 400 500 600 700 KR MY BR PH ID VN* LK MN** www.randora.lk

National Savings Bank

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