Ringgit-denominated corporate bond issuance surged by 32% year-on-year to RM97.1 billion in the first 10 months of 2017, marking the highest issuance year-to-date since 2012. The increase was led by a 34% jump in issuances in the unrated segment, of which corporate bonds made up 33%. Issuances in the rated segment also increased significantly by 30%.
Corporates have been stepping up their bond issuances this year, partly to take advantage of the still favourable interest rate environment. Issuances were also spurred by a better economic outlook. MARC expects Malaysia’s 2018 GDP growth to sustain above its long-term trend of 5%.
In October alone, corporate bond issuances reached RM13.8 billion, with the rated segment leading fundraising activities. Issuances by the two largest issuers – Southern Power Generation Sdn Bhd’s Islamic Medium-Term Notes (IMTN) Sukuk Wakalah and Quantum Solar Park Semenanjung’s Green Socially Responsible Investment (SRI) Sukuk – made up nearly 62% of the total rated bonds. Both issuers are rated by MARC.
Moving forward, MARC expects corporate bond issuances to normalise in line with the gradual uptrend in yields of Malaysian Government Securities (MGS) and corporate bonds. We anticipate overall monetary tightening in the future as economies of the developed world, particularly the United States (US), continue to improve. While inflation in the US continues to undershoot its 2% target rate, MARC believes the US Fed’s interest rate hikes will continue at a measured pace.
On the local scene, there are hints from the latest Bank Negara Malaysia’s (BNM) Monetary Policy Statement that the central bank may start increasing the Overnight Policy Rate (OPR) slightly in 2018. According to BNM, “growth has become more entrenched and synchronised across regions”. It noted that while the current policy stance remains accommodative, it “may consider reviewing the current degree of monetary accommodation”. We think BNM would hike the OPR by 25 basis points as early as in the first quarter of 2018.
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