Cagamas targets RM11b bond issuance

The company has already conducted 6 issuance exercises so far this year, bringing its YTD issuance total to RM3.3b

by NUR HANANI AZMAN/ pic by TMR FILE

CAGAMAS Bhd plans to issue a total of RM11 billion worth of bonds and sukuk this year including RM1 billion equivalent in foreign currency, as the national mortgage corporation continues to explore new markets and currencies.

This will be a 7.4% increase from the RM10.24 billion worth of bonds and sukuk issued in 2019.

“The company has already conducted six issuance exercises so far this year, bringing our year-to-date (YTD) issuance total to RM3.31 billion comprising RM2.4 billion in bonds and RM91 million worth of sukuk,” Cagamas president and CEO Datuk Chung Chee Leong (picture) told The Malaysian Reserve.

This year’s issuance is estimated to comprise 70% conventional bonds and 30% sukuk, or Islamic bonds, depending on financial institutions’ needs.

“We are on right track as bond and sukuk issuances usually pick up in the third and fourth quarters.

“Malaysia’s bond market will remain resilient amid the economic fallout triggered by Covid-19, but mitigated by a slew of measures by Bank Negara Malaysia (BNM),” Chung added.

Established in 1986, Cagamas promotes the broader spread of homeownership and secondary mortgage market growth by issuing corporate bonds and sukuk to finance the purchase of housing loans and receivables from financial institutions, selected corporations and the public sector.

The provision of liquidity at a reasonable cost to the primary lenders of housing loans encourages further financing of houses at an affordable cost.

Lower supply is expected from corporate bonds and sukuk this year, as corporates battle with challenging credit conditions.

“Corporate bond and sukuk supplies are expected to be in the RM90 billion range this year, a drop from the initial RM110 billion forecast by market players compared to RM132 billion in 2019,” Chung said.

Economic growth, already slowing pre-Covid-19 and exacerbated by the US-China trade tensions, is expected to fall both domestically and globally in 2020 due to the devastating effects of the deadly coronavirus and pandemic containment measures that have largely grounded economies to a halt.

These conditions may impact fundraising activities for corporates amid softer investors’ appetite for weaker credits.

Concerns over potential bond downgrades are increasing but defaults are generally not expected as the bond market and issuers remain healthy with ample liquidity.

Investors, however, remain selective on their investments with corporate bond and sukuk volumes skew towards quasi-government and AAA credits, Chung said.

“Yield pressures will potentially be mitigated by buying support from local investors with sufficient liquidity in the banking system and easing policies by BNM,” he explained.

The central bank has cut the Overnight Policy Rate three times this year, bringing the benchmark lending rate to 2% — the lowest since the global financial crisis a decade ago.

It also cut the Statutory Reserve Requirement (SRR) ratio from 3% to 2% in March this year, and is allowing banks to use government debt securities to comply with SRR requirements.

Thus, Chung is confident the national mortgage firm will continue to enjoy strong demand, given its track record and business model, particularly as investors seek quality in volatile economic conditions.

In fact, Malaysia’s Movement Control Order has provided the group with the opportunity to rethink its business model by being more competitive and efficient in anticipation of a different operating environment.

Among its initiatives are looking into risk participation to help banks hive off risks through synthetic securitisation products and to integrate deeper into the Islamic banking system — Profit Sharing Investment Account to promote affordable housing.

“By reimagining home financing, we also look into developing a range of products and services such as public-private partnerships, home equity schemes, reverse mortgage for retirees and home loans/financing for gig economy workers to address the needs of Malaysians at various stages of their housing lifecycle.

“On the funding side, Cagamas intends to expand and diversify its investor profile by continuing to target cross-border investors to subscribe to our primary and Euro Medium-Term Notes public issuances, and focusing on providing liquidity for small and medium enterprises via capital market solutions,” Chung said.

He also did not discount the possibility of exploring the feasibility of purchasing loans and financing related to environmental and social impact projects via the issuance of sustainability bonds and sukuk.

This comes as environmental, social and governance investing, also known as sustainable investing, is increasingly becoming a pivotal point for investors.