1MDB repayment issues spook foreign investors on Bursa
KUALA LUMPUR: The recent news of 1Malaysia Development Bhd (1MDB) failing to meet its US$602.7 million repayment seems to have spooked foreign investors as industry analysts' report net outflow in foreign holdings of Malaysian government bonds across the board in July.
In a report from the research arm of Kenanga Investment Bank Bhd (Kenanga Research), foreign holdings of Malaysia's government bonds in July fell for its second consecutive month at RM2.3 billion with outflows led by Bank Negara Malaysia (BNM) notes at RM1 billion, followed by Malaysian government securities (MGS) by RM0.7 billion, and government investment issues (GII) at RM0.7 billion.
GII experienced the worst outflow as it declined to a 16month low of 7.4 per cent in July.
As to what has triggered these large outflows, the research said the recent negative news flow on the 1MDB situation could have further spooked foreign investors.
“While the US Fed rate hike in June could have been the main reason for June's net bonds outflows, the bigger outflows in July could have been triggered by investors' concerns of 1MDB's inability to meet it large debt repayment obligation to its creditor,” explained the research arm.
To recap, 1MDB failed to make a US$602.7 million repayment to its Abu Dhabi creditor, the International Petroleum Investment Company (IPIC), on July 31, 2017.
IPIC has since given 1MDB a deadline extension to August 31, 2017 in order to meet its repayment.
Should 1MDB default on its repayment again, Kenanga Research said the situation would further erode foreign investor's confidence towards Malaysia government bonds and exacerbate the risks of capital outflow from Malaysia.