PDS issuance likely to reach Rm120bil this year

PETALING JAYA: Underpinned by an optimistic outlook, Maybank Investment Bank Research (Maybank IB Research) is projecting a gross private debt securities (PDS) issuance of Rm120bil this year.

This will be driven by healthy economic activity and conducive funding conditions.

Those factors aside, it said ongoing and planned infrastructure projects and refinancing for large maturities valued at Rm96.2bil should also spur PDS issuance in 2024.

A gross issuance is the total amount of new debt securities supplied to the market in any given period, while the net issuance is the gross amount of supply less the amounts of securities redeemed in the period in question.

In a recent report, the research house pointed out that banks are expected to issue capital debts primarily for refinancing to maintain strong capital buffers.

It noted that redeemed government-guaranteed (GG) securities slightly outstripped supply by Rm300mil in 2023, compared to 2022 where redemption outweighed issuances by Rm1.9bil.

Maybank IB Research also believed supply will remain benign this year.

“We expect a continuation of healthy demand for ringgit credit in 2024. Investor demand for primary issuances had been solid, especially for corporates with established business profile and credit metrics,” it said.

Furthermore, the net contributions to local pension funds and growth in life insurance premiums are expected to remain healthy, providing liquidity for investment demand including bonds, it said.

“The appetite of banks for bonds may also improve if the rates market becomes more stable, though their demand for local credit bonds should still gear largely toward high grades,” it added.

The research house reported that the rating migration trend was slightly positive overall in 2023, with more positive actions than negative ones.

Excluding asset-backed securities, it said no corporate default was reported in the rated portfolios of RAM Holdings Bhd and Malaysia Rating Corp Bhd, extending the benign long-term default rate that ranged 0% to 0.4% in the past 10 years.

While anticipating a preservation of stable ringgit credit conditions moving into 2024, supported by robust local macroeconomic settings, Maybank IB Research acknowledges that there will be pockets of weakness in individual credit.

It said domestic monetary policy stance has remained accommodative, with room for easing if needed, although if the US Federal Reserve were to turn hawkish unexpectedly or if the US economy suffered hard landing – leading to a deterioration in global financial conditions – these factors could still pose key ringgit credit risks.

Maybank IB Research said the gross and net supply of GG bonds will depend on the progress of existing projects, the availability of new projects, changes to the funding profile of regular issuers and whether the use of government guarantees will remain prudent to ensure fiscal sustainability.

“Ongoing infrastructure projects include East Coast Rail Link, Pan-borneo Highway in Sabah and potential new projects such as the Mass Rapid Transit 3 (MRT3), Penang Light Rail Transit (LRT) and Johor Baru Bus Rapid Transit.”

The research house forecasts that land acquisition for MRT3 could start in 2024 with approved allocation from the government.

It added that while Budget 2024 has estimated the cost of the Penang LRT to be Rm10bil, it will now be funded through public-private partnership instead.

“On redemptions, around a quarter of the Rm18bil GG maturities in 2024 is not expected to be refinanced via government guarantees,” it said.