Published on 22 Nov 2018.
As of end-October 2018, YTD corporate debt issuance (RM90.8 billion) had surpassed the lower end of RAM Ratings’ projected RM90 billion-RM100 billion for 2018, and appears set to stay within our estimate. In 2019, corporate bond issuance is projected to ease to RM70 billion-RM80 billion, primarily on account of the fewer infrastructure-related bond issues that are expected; these accounted for 17% of total issuance in 10M 2018. The other contributing factor is the slower pace of quasi-government issuance amid the Government’s project-rationalisation initiatives.
The tabling of Budget 2019 on 2 November has provided more near-term clarity on the Government’s fiscal-management strategies for this year and the next, with an estimated fiscal deficit-to-GDP ratio of 3.7% for 2018 and 3.4% for 2019. Given the larger fiscal deficit this year, we expect the Government to ramp up the issuance of MGS/GII by around RM10 billion, on top of our original estimate of RM100 billion-RM110 billion. For 2019, we project MGS/GII gross issuance to remain stable at RM110 billion-RM120 billion.
Notably, October charted a surprisingly large net foreign bond inflow of RM7.8 billion (+4.2% m-o-m) - the largest since September 2017, following two consecutive months of outflows. This can be largely attributed to a one-off technical adjustment in foreign investors’ portfolios, in reaction to the change in the composition of Malaysian bonds in JPMorgan’s GBI-EM Index because of adjustments to the maturity rule. Following the rebalancing at end-October, there was a surge in demand for MGS, which was evident in the intraday dip of 7.9 bps in the 10-year MGS yield on 31 October - a sharp break away from the uptrend throughout the rest of the month.
That said, yields across the maturity spectrum (including the 10-year MGS) still rose m-o-m, which indicates that investors are still not too bullish on Malaysia. The higher yields may be partly attributable to the downside risks stemming from volatile oil prices and the lingering weakness of the ringgit, along with the market’s concerns over a larger-than-budgeted fiscal deficit this year, as announced via Budget 2019 on 2 November, and the uncertainty this brings to Malaysia’s sovereign ratings.
Woon Khai Jhek, CFA
(603) 7628 1093
(603) 7628 1162
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2018 by RAM Rating Services Berhad