By MARK RAO / Graphic By TMR
Corporate bond issuance in Malaysia hit a record of RM124.9 billion last year but it is susceptible to foreign investors pulling out of the market due to external pressures, said RAM Rating Services Bhd (RAM Ratings).
The credit rating agency said the issuance was above its expectation of RM105 billion to RM115 billion and rose 45.9% year-on-year (YoY) from the RM85.6 billion issued in 2016, supported by the 46.1% and 45.6% YoY growths in quasigovernment and private bonds respectively.
Head of research Kristina Fong said the Malaysian bond market will remain robust in 2018 with RM90 billion to RM100 billion in gross corporate bond issuances anticipated.
“This will again likely be driven by a healthy pipeline of issuances from the financial institutions, and infrastructure and utilities sectors, which have traditionally issued the lion’s share of the market’s corporate bonds,” Fong said in a statement.
Despite the performance, foreign holdings of Malaysian bonds noted a net outflow of RM8 billion last year versus a net inflow of RM825 million in 2016, according to the firm.
It said the bulk of the outflow occurred during the first quarter of the year following Bank Negara Malaysia’s decision to curb offshore ringgit trading in November 2016, with foreign investors winding down their positions in the market by RM37.4 billion.
The cumulative inflow of RM29.4 billion over the remaining three quarters, which resulted from the central bank liberalising currency and interest-rate hedging mechanisms onshore, was unable to offset the initial fund flows out of the country’s bond space.
“Moving forward, the Malaysian bond market is anticipated to experience pressure from the outflow of foreign investors this year, stemming from external global developments such as the relative pace and timing of future monetary policy tightening by the US Federal Reserve,” RAM Ratings said.
For government-issued bonds, the total issuance of Malaysian Government Securities (MGS) and government Investment Issue (GII) was at RM113.9 billion in 2017, surpassing RAM Ratings’ projection of RM100 billion and RM110 billion.
This represented a 32.4% YoY increase from the RM86 billion achieved in 2016.
“Taking into account the government’s deficit financing needs and the RM62.8 billion of MGS and GII set to mature this year, we expect gross issuance of long-term government debt securities to sum up to RM100 billion to RM110 billion in 2018,” the rating agency said.