(File pix) Malaysian Rating Corporation Bhd (MARC) says the primary market is expected to take a breather after a bumper 2017 when issuers had rushed to raise funds given the prospects of monetary policy normalisation, and therefore likely higher borrowing costs ahead.

KUALA LUMPUR: Malaysia’s gross corporate bond issuance is likely to hit between RM90 billion and RM100 billion this year, Malaysian Rating Corporation Bhd (MARC) said.

MARC said the primary market is expected to take a breather after a bumper 2017 when issuers had rushed to raise funds given the prospects of monetary policy normalisation, and therefore likely higher borrowing costs ahead.

“Our current forecast, which is slightly higher than our earlier projection of between RM85 billion and RM95 billion, is premised on expectations of a sturdy pipeline of issuances from the government guaranteed (GG) segment related to the financing of current and new large-scale infrastructure projects.

“We also expect issuances of unrated corporate bonds to continue growing because of savings on issuance costs, as well as capital market incentives introduced in Budget 2018,” MARC said in its report yesterday.

In the secondary market for MGS and corporate bonds, MARC anticipates bond yields to increase gradually in 2018.

It said compared to 2016, ringgit bonds had ended 2017 on a stronger footing.

Going forward, however, it said ringgit bond yields should gradually rise, although the magnitude of the rise will depend on the pace of the FFR (federal funds rate) and OPR hikes, prospects of the Malaysian economy in 2018 and the trend in the ringgit against the US dollar.

“Overall, Malaysia’s positive economic growth outlook, improving business sentiment, supportive government policies and regulations, as well as firmer ringgit should continue to drive demand for local bonds.

“This should help somewhat moderate the potential rise in ringgit bond yields against a backdrop of interest rate increases by central banks,” it said.

Gross issuance of Malaysian Government Securities/Government Invesment Issues (MGS/GII),. meanwhile, is expected to come within the range of RM100 billion to RM105 billion, the agency said.

The forecast is based on the government’s budget deficit estimate of RM39.8 billion, as per Budget 2018, RM62.8 billion worth of MGS/GII papers projected to mature in 2018 and its own forecast of a GII-to-MGS ratio of 44:56.

MARC said based on the 2018 MGS/GII auction calendar, the government plans to offer a total of 33 issuances (new issuances: 9, reopening: 24) in 2018.

Accordingly, 18 issues will be offered via GII, in line with the government’s objective to promote the Islamic capital market, with the remaining via MGS issues.

With about 54.8 per cent of existing securities maturing within three to ten years, MARC anticipates a big chunk of the 2018 MGS/GII supply to be skewed towards the belly of the curve in an effort to smoothen the debt maturity profile.

MARC said it expects foreign holdings of local “govvies” to continue rising towards the end of 2018 and record a net positive inflow.

“This expectation is based on reasons that include an expectation of an overnight policy rate hike in early 2018, an upbeat outlook of the ringgit, an improvement in crude oil prices, and the strengthening of the US economy that could lead to a faster pace of interest rate normalisation.

“The lower volume of maturing MGS/GII papers in 2018 with a projected total value of RM62.8 billion should also provide support,” it added.

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