KUCHING: Malaysia’s corporate bond market has decelerated in in the first half of 2014 (1H14), but ratings agency RAM Ratings says the market should pick up momentum in 2H14, driven by Malaysia’s better-than-expected growth and improving macro factors.
In a press release, it said during 1H, the corporate bond market had grossed RM42.2 billion of new issues, which is about five per cent lower year-on-year.
It explained, active issuers for the period include Islamic financial institutions raising Basel III-compliant sukuk, infrastructure and utility providers, and construction and real-estate companies. It added, sukuk remained in favour, accounting for 56 per cent of the issuances while, nearly 88 per cent of the issued bonds were rated at least AA.
“The bond market and investors had earlier been kept on the sidelines by expectations of an overnight policy rate (OPR) hike by Bank Negara Malaysia (BNM) and also the timing of the US Federal Reserve’s quantitative easing (QE) tapering. Now that these events have finally materialised, we anticipate the corporate bond market to pick up momentum in 2H14.
“Malaysia’s better-than-expected GDP growth of 6.3 per cent in 1H 2014 (1H13 at 4.4 per cent) should also boost potential issuers’ confidence to proceed with their funding plans. Although interest rates are now higher, they are still supportive of fund-raising and investment activities,” RAM Ratings opined.
Also, against this backdrop, RAM’s full-year gross domestic product (GDP) growth forecast has been revised upwards to 5.6 per cent.
“We expect the corporate bond market to pick up momentum in 2H14, to end the year with a gross issuance of between RM90 billion and RM95 billion, led by a number of new infrastructure and utility projects that are expected to come on-stream soon, as well as the funding needs of ongoing Economic Transformation Programme (ETP) initiatives,” RAM Ratings projected.
Meanwhile, it said, in 1H14, RAM Raings published the ratings of 28 new debt issues, with a total programme value of RM78.7 billion (1H13 with 11 issues at RM20.7 billion).
Its outstanding portfolio, valued at RM504 billion as at end-June 2014, remained stable. More than 90 per cent of this portfolio carried at least AA ratings while 93 per cent per centof those ratings had a stable outlook. In its review report on rating movements in 1H14, it has highlighted that there are no no issuer defaulted in that period.
In addition, it said, the downgrade-to-upgrade ratio increased from 0.33 to 0.67 in 1H14, as the number of downgrades increased. As a result, the four-quarter moving-average rating drift (upgrades net of downgrades and defaults) has turned south, ending at just above positive territory in 2Q14.
However, it noted the severity of rating actions continued to moderate. RAM Ratings explained, companies received an average downgrade of 1.2 notches (1H13 by 2.5 notches) while those that were upgraded received an average of 1.1 notches (from 1.5 notches previously).
“The number of issuers with a negative rating outlook stood at eight, compared to seven in the previous corresponding period; those with a positive rating outlook remained unchanged at three issuers.
“Issuers with greater risk of a possible downgrade over the next six to 18 months are from the plantation & agriculture, property & real estate, and trading & services sectors. However, all of these issues are either guaranteed by banks and/or other financial institutions,” it added.