Islamic bond sales in Malaysia jumped this month to the most since December 2013, adding to signs confidence is returning to the world’s biggest sukuk market.
Issuance was 24 percent higher than in March at 11 billion ringgit (US$3.1 billion), according to figures compiled by Bloomberg. Sovereign wealth fund Khazanah Nasional Bhd. accounted for 2 billion ringgit and DanaInfra Nasional Bhd, a state-owned company that funds subway construction, raised 3.5 billion ringgit.
Malaysia’s government drew bids for six times the US$1.5 billion of dollar-denominated sukuk it offered last week and the ringgit is having its best month in three years. Malaysia is the only net oil exporter among Asia’s major economies and its fortunes are heavily influenced by swings in the price of Brent crude, which rebounded 17 percent this month after slumping in the past three quarters. The ringgit was Asia’s worst-performing currency of the last six months after the yen and Fitch Ratings signaled in March the nation’s credit rating would probably be downgraded in a coming review. “There’s a lot more confidence among issuers after the government’s sukuk sale last week,” Mohd. Effendi Abdullah, Kuala Lumpur-based head of Islamic markets at AmInvestment Bank Bhd., said by phone Tuesday. “Discussions on financing of big infrastructure projects are currently underway.” Yields Decline Local sukuk sales will gain momentum and surpass last year’s 66.1 billion ringgit as more development projects move ahead, according to an estimate from AmInvestment Bank, Malaysia’s third-biggest arranger of Islamic notes. The nation will start work on projects valued at 75 billion ringgit this year, Prime Minister Najib Razak said in his October budget. Borrowing costs on top-rated five-year debt have dropped to the lowest levels since October, with the yield on AAA corporate bonds due 2020 declining five basis points, or 0.05 percentage point, this year to 4.22 percent on April 21. Malaysia cut its 2015 economic growth target in January to 4.5-5.5 percent from an earlier projection of as much as 6 percent, citing the damping effect of an oil price slide. Brent crude has since rebounded and is up 12 percent this year after dropping 48 percent in 2014. Southeast Asia’s third-biggest economy derives about 30 percent of its government revenue from energy-related sources. The ringgit has retreated 8 percent since October and reached a six-year low in March, weighed by the slump on oil prices. It gained 4.1 percent this month and is the best performing currency in Asia.
The ringgit closed down 0.1 percent at 3.5587 a dollar in Kuala Lumpur Wednesday. Interest Rates Most issuers aren’t in a hurry to sell because the chances of an interest-rate increase have diminished with the decline in oil prices cooling inflation, according to Manulife Asset Management Services Bhd., a unit of Canada’s biggest insurer. Consumer prices rose 0.9 percent in March from a year earlier, compared with the one-year average of 2.4 percent. The central bank kept its overnight policy rate at 3.25 percent for a fourth meeting last month. “The pipeline in Malaysia is a bit dry at the moment as there’s less pressure to lock in lower borrowing costs,” Elsie Tham, a senior fund manager at Kuala Lumpur-based Manulife Asset Management, which oversees more than US$1 billion, said in a phone interview Tuesday. “There are some big project financings being mentioned, but nothing has firmed up yet.” Supply Shortage Islamic debt sales in Malaysia fell 11 percent to 22.7 billion ringgit in 2015 while offerings of international notes that pay returns on assets to comply with the religion’s ban on interest climbed 16 percent to US$7.7 billion, data compiled by Bloomberg showed.
A supply shortage drove the Bloomberg-AIBIM Bursa Malaysia Corporate Sukuk Index, which tracks the most-traded local- currency notes, 1.8 percent higher to 110.45 this year as investors sought to park a record 625.2 billion ringgit of Islamic banking assets. The gauge reached a record 110.75 on April 21. “Conditions are conducive for companies to tap the market now as there’s little inflationary pressure,” Nik Mukharriz Muhammad, a Kuala Lumpur-based fixed-income analyst at CIMB Investment Bank Bhd., said by phone Tuesday. “The healthy economic growth and the rebound in crude oil prices also give issuers confidence to raise funds for expansion and for infrastructure development.”