Global investors cut holdings of Malaysian bonds in July as media reports revealed almost $700mn of transfers to Prime Minister Najib Razak’s bank account. A probe showed the funds were donations.
Bloomberg/Kuala Lumpur
Malaysian companies are putting sukuk sale plans on hold as corruption probes cloud the outlook for yields amid a looming US interest-rate increase.
The number of Shariah-compliant bond deals completed so far in 2015 has fallen to 149, the least since 2011 and down from 177 a year earlier, data compiled by Bloomberg show. Issuance has slumped 27% to a five-year low of 30.1bn ringgit ($7.3bn).
RHB Investment Bank Bhd and AmInvestment Bhd say sukuk offerings will fall short of last year’s 65.1bn ringgit, the second-best on record, as a 15% plunge in the ringgit in 2105 and a collapse in oil prices makes it hard to gauge the earnings outlook.
Global investors cut holdings of Malaysian bonds in July as media reports revealed almost $700mn of transfers to Prime Minister Najib Razak’s bank account. A probe showed the funds were donations.
“It’s a cocktail of local political and economic headwinds,” said Mohd Effendi Abdullah, Kuala Lumpur-based head of Islamic markets at AmInvestment, this year’s fourth- biggest sukuk arranger. “While the pipeline is there, people are hesitant to sell because of the uncertainties.”
Local-currency borrowing costs for top-rated Malaysian companies rose to a three-month high of 4.65%, according to a central bank index of 10-year conventional bonds. The yield on similar-maturity Islamic government debt has climbed 30 basis points this quarter to 4.40%, nearing a record 4.44% reached in December 2013.
CIMB Group Holdings Bhd, the leading sukuk underwriter, has managed 43 deals in 2015 valued at 6.5bn ringgit, down from 76 totalling 11bn ringgit a year earlier. Effendy Shahul Hamid, the bank’s chief marketing and communications officer, has yet to reply to an e-mail seeking comment.
Badlisyah Abdul Ghani resigned as the chief executive officer of CIMB Group’s Islamic unit this month “to explore new opportunities.”
RHB Investment, which is second in the rankings, has overseen 53 sales for 6.4bn ringgit, compared with 62 last year valued at 5.4bn ringgit.
Brent crude prices that have more than halved from 2014’s peak are weighing on the ringgit as government revenue deteriorates for the net oil exporter. Overseas investors cut holdings of Malaysian corporate and government debt by 2.4% last month to 206.8bn ringgit, the least since 2012, official data show.
Malaysian companies are reassessing borrowing requirements, said Angus Salim Amran, Kuala Lumpur-based head of financial markets at RHB Investment, a unit of RHB Capital Bhd. He predicts sales will be 20% lower than 2014’s. The most likely issuers will be those under the government’s $444bn infrastructure development programme, including power and telecommunications companies, he said. “We have a healthy pipeline,” Angus said.
Malayan Banking Bhd arranged 30 Shariah-compliant debt sales so far in 2015 as the third placed underwriter, compared with 60 at the same point last year. They totalled 4.9bn ringgit versus 8.4bn ringgit. Winson Phoon, the Kuala Lumpur-based bond analyst at its unit Maybank Investment Bank Bhd, said there may be a potential sales pick up in the fourth quarter as conditions stabilise.
“The market’s cautious tone in part contributed to the lower corporate sukuk issuance,” said Phoon. “With the persistent ringgit weakness and bond market sell off, yields are correcting higher.”
