Optimism on the Ringgit

by **Cals** Mon 20 Apr 2015, 02:10

Optimism on the Ringgit

Saturday, 18 April 2015

MALAYSIA’S sale of US dollar-denominated bonds of US$1.5bil in two tenures of 10 and 30 years reflects an optimistic view of the ringgit.
The 10-year Islamic bond papers were issued with a yield-to-maturity of 3.04% while the 30-year papers were issued at yields of 4.24%.
For the 10-year debt papers, the spread was 115 basis points or 1.15% above the US dollar papers that come with similar maturity while the spread for the 30-year papers were priced at 170 basis points or 1.7% above similar US dollar papers.
The spread above the US dollar papers is a reflection of the risk premium. Malaysia’s spread of between 1.15% and 1.7% above the US dollar debt papers with similar tenures is normal for developing countries such as Malaysia. For some countries such as Greece where there are doubts on its ability to service the debts, the spread its debt papers and similar papers issued by the United States is more than 10%.
The fact that the demand was good – as indicated by the over-subscription rate of seven times – is only to be expected because in Europe and other parts of the world, the yields are near zero or in negative territory.
A more important signal arising from the pricing of the bonds is the view of the ringgit.
The ringgit-denominated debt papers with similar maturity are trading at much higher yields compared with the just-issued Islamic debt papers.
A 10-year Malaysian Government Security (MGS) paper is trading at yields of 3.88%, which are much higher than the 3.04% for the US dollar paper while a 30-year MGS is going for yields of 4.58%.
What does this mean?
A currency strategist Suresh Kumar from CIMB feels that it is a sign indicating that the foreigners are not pricing in a depreciation of the ringgit against the US dollar. If they had, the yields would have been closer to what the ringgit papers were trading at.
Protecting minority interests
THE recent decision by the Securities Commission (SC) to reject the reverse takeover (RTO) attempt by integrated poultry producer, Farm’s Best Bhd, is indicative of the importance the regulator places on minority interest rights and on sufficient disclosures.
Farm’s Best was seeking an RTO by a Chinese-based poultry operator since the middle of last year.
But this week, Farm’s Best disclosed that the SC had rejected the proposal. Farm’s Best set out clearly the reasons why: The SC was of the opinion that Farm’s Best, its directors and advisers had “failed to undertake a critical assessment of the information being reviewed and submitted, judging from the numerous inconsistencies, mistakes, omissions and poor quality disclosures contained in the application as well as in the responses to the SC”.
The regulator also said the disclosed total ascribed value of the Lerfood securities to be received may not be realisable and may potentially be misleading for Farm’s Best shareholders considering the proposals. Lerfood is an investment holding company incorporated as a special-purpose vehicle to undertake the acquisition of the Farm Best’s group and the vendors’ China-based poultry business.
“SC had noted that the bulk of the total ascribed value of the Lerfood securities to be received by Farm’s Best shareholders is contributed by the highly theoretical value of Lerfood warrants which have a limited lifespan and whose realisable value to Farm’s Best shareholders would be dependent on the warrants’ liquidity and market prices as well as market conditions at the material point in time,” the statement said.
The regulator’s stance on the matter is all-important. There are many listed shells out there that are seeking to pursue RTOs but in many cases, the interest of the existing minority shareholders may take second place to the main players, namely the major shareholder and the new party coming in. The regulator is there to ensure that fairness is achieved for all affected parties.
Property transactions down
WHAT goes up must come down. That famous proverb is a saying that anything that rises too fast will come down and that has now been seen in the hottest property market in Malaysia: Iskandar Malaysia.
Data from the National Property Information Centre (Napic) showed that in the fourth quarter of last year, transactions in Iskandar Malaysia plunged 33% compared with the third quarter of 2014.
A fall by 12% in the number of transactions was also seen in Kuala Lumpur but volume of transactions in Selangor and Penang still showed positive numbers.
A report by Maybank Investment Bank on the Napic data showed that property prices in Johor have weakened by 1% quarter-on-quarter compared with the national average of a fall of 0.2%. Prices of property in Kuala Lumpur were 0.9% down, Selangor (-0.1%) and Penang (-0.3%).
These numbers show that the bane for most potential property buyers – prices – are still holding relatively firm and have seen only a small dip. But how long can that prevail if transaction volumes continue to fall.
It’s been well documented that the affordability ratio for property in Malaysia is putting buyers at a disadvantage. Buying a property in Malaysia is more costly than in Singapore if it is judged by the number of years of salary of an average resident to purchase a property.
Furthermore, with a lot of supply coming on stream, it’s no wonder why people are increasingly prepared to take a back seat before deciding on buying a property, excerbating the decline in the volume of transactions.
With the price of property skyrocketing in the past and now the Government more actively engaged in building affordable houses, one wonders just where those dynamics will take the property sector.
It will look like property developers will have to be more discerning in the type and value of homes they will launch and sell as it appears that more Malaysians might be taking a wait-and-see atitude before purchasing a house.
RHB Cap says no intention to sell insurance arm
WITH reference to the article entitled “RHB To Sell Insurance Arm?”, RHB Capital Bhd (RHB Cap) would like to clarify that it currently has no intention of disposing nor reducing its interest in its insurance arm, RHB Insurance Bhd.
As announced earlier this week, RHB Cap is proposing to undertake an internal restructuring exercise to streamline the businesses of RHB Capital group under RHB Bank which will involve the transfer of certain operating subsidiaries, including RHB Insurance, to RHB Bank. The proposed restructuring exercise does not involve the disposal of any of our subsidiaries to third parties.
The proposals under the restructuring exercise are subject to the approval of relevant authorities including the Securities Commission, Bursa Securities, Finance Ministry and Bank Negara.