SINGAPORE (Dec 15): Malaysia’s bond market is set to extend its record for ringgit issuance by the end of the year after powering through the 2011 annual high.
Ringgit bond sales so far this year have reached RM92.9 billion (US$22.8 billion), up nearly 30% from 2016's annual total and on track to test the RM100 billion landmark over the next couple of weeks.
A robust economy, with GDP growth running at 6.2% in the third quarter, and an extensive infrastructure programme are lifting demand for long-term credit.
“Higher total bond issuance this year reflects rising financing needs of the corporate sector fuelled by debt-raising exercises from infrastructure and utilities projects,” said one banker.
Other issuers are still working feverishly to close a number of deals before the year ends, including a RM5.28 billion power project financing for Edra Energy. A potential RM5.65 billion financing for PNB Merdeka is likely to price early in 2018.
A strong economy was a factor in Moody’s affirmation of Malaysia’s A3 rating in early December. According to the rating agency, the country is one of the fastest-growing Single A rated sovereigns globally, second only to China in Asia.
The booming economy has lured foreign funds back into the country, fuelling an appreciation in the ringgit and a rally in Malaysian government securities in recent months. The ringgit was hovering at RM4.08 much of last week, having strengthened from RM4.48 at the start of the year. Foreign holdings of MGS in November increased 4.6% month on month to RM160.3 billion, accounting for 44.3% of the total outstanding.
“Ringgit momentum is surprisingly strong,” said Ng Kheng-Siang, Asia Pacific head of fixed income at State Street Global Advisors. “Within Asia, investors are taking away from areas that did well and redeploying in areas that didn’t do as well, but are still okay. That's why we saw a late surge in ringgit assets.”
Project finance and infrastructure-related bonds made up a large part of this year’s issuance, reflecting a renewed effort to develop national road and rail transportation networks, as well as power capacity since a severe shortage in 2014.
In the power sector, Edra’s upcoming issue will be the largest project bond of the year if joint lead managers CIMB, Maybank and RHB complete the RM5.28 billion placement in time. The leads are likely to take the paper on their books initially in order to close the deal, before selling down into the secondary market early next year when investors return.
The power note follows another jumbo RM3.665 billion project bond from Southern Power Generation in October and a RM800 million bond from Tanjung Bin Energy in March.
Amid the record volumes, landmark Green project bonds made their maiden appearance, with a RM250 million issue from Tadau Energy in July and a RM1 billion offering from Quantum Solar Park Semenanjung in September.
PNB Merdeka is poised to launch the country’s first ASEAN Green sustainable and responsible investment sukuk, but rival bankers believe it is unlikely to be completed within the next two weeks.
The primary market faces a number of uncertainties next year. Higher borrowing costs could be looming as the government seeks to tighten monetary policy, and there could be a potential impact from political developments ahead of a general election due to be held in 2018.
Still, analysts expect ringgit bond issuance to continue at a brisk pace.
“We expect total corporate bond issuance next year to come in at between RM85 billion and RM95 billion,” said Nor Zahidi Alias, chief economist for Malaysian Rating Corp.