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Friday August 6, 2010

Why are more firms issuing bonds?

PETALING JAYA: The recent announcements by state investment arm Khazanah Nasional Bhd and several listed companies to raise debt might have stemmed from demand in the market for such issuance after the relatively quiet first half of the year.

Malaysian Rating Corp Bhd fixed income research head Wan Murezani Wan Mohamad said since primary market activity was relatively quiet in the first half, the number for the second half would likely be higher if a comparison was to be made.

He told StarBiz in an email reply that bond issuances would pick up in the second half “based on bond deals in the pipeline.”

“Companies seen tapping the bond market actively of late is a manifestation of improving economic activity which gives them more confidence for expansion,” Wan Murezani added.

Wan Murezani Wan Mohamad

He said as government bond yields were quite low at present, bonds or sukuk issued by private entities would be more appealing, especially given the return of economic growth.

Khazanah announced on Tuesday that it was raising S$1.5bil (RM3.6bil) of five- and 10-year sukuk while it was reported that Axiata Group Bhd had planned to sell the bulk of its RM4.2bil Islamic bonds to the Employees Provident Fund.

Bankers also said it was likely that T. Ananda Krishnan-associated companies Astro All-Asia Networks plc, Measat Global Bhd and Tanjong plc going private would be financed via debt.

Yesterday, CIMB Investment Bank Bhd announced on behalf of the board of Malaysia Airports Holdings Bhd (MAHB) that the company, through subsidiary Malaysia Airports Capital Bhd (MACB), was proposing to raise Islamic commercial papers and Islamic medium-term notes of up to RM3.1bil.

The investment bank said the proceeds would be used to part-finance the construction of a new airport terminal expected to be completed by the end of the first quarter of 2012.

CIMB said the proceeds could also be used to refinance MAHB’s existing borrowings/financings, which were utilised for syariah-compliant purposes and/or for MAHB’s syariah-compliant general corporate purposes.

Singapore-based Rothschild debt advisory division director Enoch Tan said the recent slew of debt raising “demonstrates that credit appetite for banks and other debt investors have returned somewhat after a relatively quiet past two years.”

He noted that there was sufficient liquidity in the domestic market currently to support a large raise-up whether by bonds, sukuk or loans at a reasonable rate.

AmResearch Sdn Bhd treasury analyst Karen Wan said “in general, the new issuance will help to satisfy some of the demand for corporate bonds that has built up in the relatively quiet market so far this year.”

However, she said, activity in the corporate bonds market would still depend on whether the bonds were offered to the market or whether they were privately placed out, as was likely in the case of Axiata.

Meanwhile, RAM Ratings has assigned a preliminary long- and short-term ratings of AAA and P1 respectively to MACB’s Islamic medium-term notes programme and Islamic commercial paper programme.

RAM Ratings said in a media release that the ratings were a reflection of MAHB’s credit risk given the strong credit link between MAHB and MACB.

The rating agency said MAHB’s airport-operating concessions in the country and monopoly position reflected a strong business profile with a strong margin on operating profit.

It added that the rating also reflected the Government’s financial support for the company due to its critical role as the operator of the country’s airports.

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