MARC: Corporate bond issues may rise to RM100b

Rating agency expects sturdy pipeline of issues from infrastructure project financing

MARC says its forecast is based on expectations of a sturdy pipeline of issuances related to the financing of current and new large-scale infrastructure projects.

MALAYSIA’S gross corporate bond issuance is likely to hit between RM90 billion and RM100 billion this year, says Malaysian Rating Corp Bhd (MARC).

MARC said the primary market is expected to take a breather after a bumper 2017 when issuers rushed to raise funds given the prospects of monetary policy normalisation, which might lead to higher borrowing costs.

“Our current forecast, which is slightly higher than our earlier projection of between RM85 billion and RM95 billion, is premised on expectations of a sturdy pipeline of issuances from the government-guaranteed (GG) segment related to the financing of current and new largescale infrastructure projects.

“We also expect issuances of unrated corporate bonds to continue growing due to savings on issuance costs, as well as capital market incentives introduced in the 2018 Budget,” said MARC in its report yesterday.

In the secondary market for Malaysian Government Securities (MGS) and corporate bonds, MARC anticipates bond yields to increase gradually this year .

It said compared with 2016, ringgit bonds ended last year on a stronger footing.

MARC, however, said ringgit bond yields should gradually rise, although the magnitude will depend on the pace of the FFR (federal funds rate) and Overnite Policy Rate (OPR) hikes, prospects of the local economy this year and the ringgit trend against the US dollar.

“Overall, Malaysia’s positive economic growth outlook, improving business sentiment, supportive government policies and regulations, as well as firmer ringgit should continue to drive demand for local bonds.

“This should help somewhat moderate the potential rise in ringgit-bond yields against a backdrop of interest rate increases by central banks,” it said.

Gross issuance of MGS/Government Invesment Issues (MGS/GII), meanwhile, is expected to come in between RM100 billion and RM105 billion, said MARC.

The forecast is based on the government’s budget deficit estimate of RM39.8 billion as per 2018 Budget, RM62.8 billion worth of MGS/GII papers projected to mature this year and its own forecast of a GII-to-MGS ratio of 44:56.

The rating agency said it expects foreign holdings of local “govvies” to continue rising towards the year-end and record a net positive inflow.

“This expectation is based on reasons that include an expectation of an OPR hike early this year, an upbeat outlook of the ringgit, an improvement in crude oil prices, and the strengthening of the United States economy that could lead to a faster pace of interest rate normalisation.

“The lower volume of maturing MGS/GII papers this year, with a projected total value of RM62.8 billion, should also provide support,” added MARC.