Appetite for bonds


  • Business
  • Wednesday, 24 Feb 2016

Maybank Research: Khazanah Nasional unlikely to privatise UEM Sunrise

PETALING JAYA: Malaysian Government-linked entities are poised to raise billions of ringgit via US-dollar bonds, as appetite for such papers has increased amid hunger for yields and a more bullish outlook on the Malaysian economy, bankers said.

Going by one estimate, there could be as much as US$20bil (RM84.22bil) being raised by Malaysian entities, including the Government, Khazanah Nasional Bhd, Petroliam Nasional Bhd, Axiata Group Bhd and Telekom Malaysia Bhd, to name a few.

Reuters reported that sovereign wealth fund Khazanah is marketing a five-year US-dollar sukuk issuance. The report did not specify the amount that Khazanah intends to raise, but insiders reckon that the sovereign fund could be testing the market to see how much it could raise at rates amenable to it.

CIMB, DBS and Standard Chartered are lead managers for the deal.

The Malaysian sovereign wealth fund last issued a dollar-denominated exchangeable Islamic bond in 2006, when it sold a US$1bil debt at 5.625%.

If history is anything to go by, then foreign investors usually respond well to Malaysia’s dollar debt offerings.

Last year, the Government’s issuance of US$1.5bil sovereign global sukuk attracted an aggregate interest of over US$9bil (RM32.8bil) from a combined investor base of over 450 accounts.

The issuance consisted of a US$1bil (RM3.65bil) 10-year and US$500mil (RM1.8bil) 30-year benchmark Trust Certificates (Sukuk). The 30-year tranche had a coupon rate of 4.24%.

The offering marked the country’s fourth US dollar-denominated sovereign global sukuk issuance, following its successful global sukuk issuances in 2002, 2010 and 2011.

Last November, Axiata also attracted plenty of interest when it priced its five-year US$500mil Islamic bond at 1.75% over US Treasuries, at 3.466%.

“If the issuer of the dollar-denominated bond is a high-quality issuer like the Government or Petronas, the reception from international investors is typically very positive,” said a bond fund manager from a foreign insurance firm.

Capital is indeed finding its way back to emerging Asian markets, including Malaysia as low interest rates prevail in the US, and economies like Japan and China continue to cut interest rates.

With US interest rates having stayed in negative territory for so long, and with further doubts on future rate hikes, investors are getting desperate for yields.

“The average yield for a 10-year dollar-denominated sukuk is 3.15%, and this is 140 basis points above the US Treasury rates. So yes, we have definitely been seeing interest of capital returning to our bonds,” said the bond fund manager.

Economy wise, Malaysia appears to be stabilising. Yesterday, Fitch Ratings affirmed its “stable” outlook for the country with an A- rating, noting that the recent Budget 2016 recalibration showed that the Government has remained committed to fiscal consolidation. Fitch said it viewed the macroeconomic assumptions made in the Budget as broadly realistic.

Last week, Bank Negara announced that Malaysia’s economy grew by 4.5% in the final quarter of last year, which was better than expected. This brings the full-year gross domestic product growth to 5% from 6% in 2014.

The ringgit is the best-performing emerging-market Asian currency over the past three months, having been one of the worst performers last year. Year-to-date, the ringgit has gained 2.05% against the US dollar. This makes the Malaysian currency one of the top performers in the region so far this year.

The economy is on a better footing now that the Government has revised its budget based on oil prices between US$30 and US$35, and the country is on track to achieve its targeted budget deficit of 3.1%.

This gives foreigners the assurance that the risk of a credit downgrade is minimised, and hence the ringgit ought to remain more stable.

Data from Bank Negara show that Malaysia’s bond market registered net foreign inflows of RM1.7bil last month, compared with RM1.2bil in December 2015. This brings total foreign holdings of Malaysia’s total debt securities to RM216.5bil in January 2016, compared with RM214.8bil in the preceding month.

Inflows have been particularly strong in the Malaysian Government Securities (MGS) segment, with foreign ownership of MGS rising to RM164.4bil, or 47.9% of total MGS outstanding, as at end-January 2016, from RM162.1bil, or 47.7%, in December 2015.

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Business , Bonds , debt , issuance , Khazanah

   

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