MARC: Less favorable scenario for raising capital

PETALING JAYA: The capital-raising environment in Malaysia is expected to become less favorable this year, according to MARC Ratings.

The rating agency also warned that the current trend of negative rating metrics outpacing positive metrics in the MARC Ratings universe will prevail as rising funding costs weigh on corporate credit metrics.

“This is particularly the case for sectors that have been badly hit by the foreclosure measures and where the recovery is likely to remain prolonged,” he said in the 2022 Bond Market Outlook released yesterday.

Despite market challenges, MARC Ratings predicted a slight moderation in corporate bond issuance in 2022 to between RM100bn and RM110bn.

With the Malaysian economy expected to remain on track to recover, this should help bolster sentiment towards corporate bonds.

On government bonds and sukuk, MARC Ratings predicted higher gross issuance of Malaysian Government Securities (MGS) and Government Investment Issuance (GII) in 2022, in a range of RM160bil to RM170bil.

“This is based on the government’s projected budget shortfall of RM97.5 billion, as well as the RM65.3 billion value of MGS and GII that will fall due in the same year. That said, we see upside potential for our projection this year given the long-term economic scars and lack of funding sources. »

In 2021, the total gross issuance of MGS and GII increased to RM163.9 billion from RM151.9 billion in the previous year.

The amount was below MARC Ratings’ projection of RM170bil to RM180bil, based on the upward revision of the government’s budget deficit estimate to 6.5% of gross domestic product from 5.4% initially.

Of the total gross issuance in 2021, approximately RM128.5 billion was raised through 37 public offerings, while the balance was raised through private placements and switch auctions. “Based on the 2022 MGS and GII auction schedule, a total of 36 public offerings will be conducted in 2022, 18 of which will be offered through MGS while the balance will come from GII issuances.

“Given this, we estimate the average issue size for each public offering to be between RM3.7bil and RM4.2bil,” MARC Ratings said.

As 2022 approaches, MARC Ratings expected an upward shift in the MGS yield curve with a flattening bias.

He said the decline in foreign holdings of local government debt will continue in the near term, alongside a weakening of the ringgit as investors consider the timing and pace of US monetary tightening.

“Nevertheless, we believe that the rise in MGS yields would not be too large given the widening yield spreads between MGS and major sovereign bonds, which could be of interest to investors looking for yield.

“The presence of a large pool of domestic institutional investors will also provide some support to MGS,” according to the rating agency.

Meanwhile, MARC Ratings pointed out that concerns are growing globally that more supply-side issues will push up inflation and dampen the already fragile economic recovery.

“As things stand, several countries have already seen inflation rise well above their monetary policy targets.

“We believe Bank Negara’s take-off, which could come in the second half of 2022, will be ahead of the curve in the face of rising prices and capital outflows,” he said.

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