Unrated corporate bonds exceed rated issuances in Malaysia

Total corporate bond issuance year-to-date to October 2017 amounted to 97.1 billion ringgit (US$23.17 billion)

UNRATED corporate bonds are gaining ground in Malaysia and have exceeded the issuance volume of rated paper in the country’s corporate bond market, according to Malaysian Rating Corporation (MARC).

Total corporate bond issuance year-to-date (YTD) to October 2017 amounted to 97.1 billion ringgit (US$23.17 billion), of which unrated bonds accounted for 48.7 billion ringgit, while rated bonds reached 48.4 billion ringgit. Of the unrated bonds, unrated government-guaranteed notes amounted to 32.6 billion ringgit, up from 28.1 billion ringgit in the whole of 2016.

The total YTD volume, according to MARC, represented an increase of 31.6% from 73.8 billion ringgit in the corresponding period of 2016 and was the highest since 2012. In 2012, Malaysia’s corporate bond issuance hit a high of 123.8 billion ringgit, but fell to 86.2 billion ringgit the following year.

MARC says gross issuance is poised to breach the 100-billion-ringgit level in 2017, underpinned by the prospects of recovery in the ringgit and more hawkish central banks in advanced economies that fueled corporate bond issuers to increase issuances.

In 2016, total corporate bond issuance stood at 84.8 billion ringgit, with rated bonds contributing 43.4 billion ringgit and unrated bonds 41.3 billion ringgit. Malaysia decided to scrap the mandatory rating requirements for corporate bond issuance effective January 1 this year in a bid to deepen the country’s bond market.

The unrated corporate bond segment this year was dominated by QSR Stores, which arranged 13 tranches of unrated sukuk murabaha amounting to 1.3 billion ringgit. The bonds have tenors of between two years and seven years, with coupons ranging from 4.72% to 4.90%.

The gross issuance of rated corporate bonds was led by the 28 tranches of Islamic medium-term notes sukuk wakala by Southern Power Generation totaling 3.7 billion ringgit with tenors of between five years and 18 years, and coupons ranging from 4.70% and 5.61%.

In terms of sectors, financial services dominated the issuance volume this year with 45.4 billion ringgit, followed by infrastructure and utilities with 18.1 billion ringgit, and property and real estate with 10.8 billion ringgit.

Meanwhile, total outstanding Malaysian government securities (MGS) and government investment issue (GII) papers amounted to 626.2 billion ringgit in October, compared with 630.4 billion ringgit recorded in the previous month. The decline in total outstanding was due to the continuing trend of a large value of MGS papers reaching maturity. Total MGS papers that matured in October total 12.2 billion ringgit, compared with 12.6 billion ringgit in September.