Malaysia’s richest refinancing on rate signal

by **Cals** Thu 28 Nov 2013, 10:27

Business & Markets 2013

Written by Bloomberg

Thursday, 28 November 2013 09:24

(Nov 28): Malaysia’s richest people are refinancing Islamic bonds on concern the fastest inflation in almost two years will further drive up borrowing costs.

Binariang GSM Sdn., the telecommunications provider owned by billionaire T. Ananda Krishnan, is considering selling about 6 billion ringgit ($1.9 billion) of Islamic bonds, said a person familiar with the matter. Malakoff Bhd., a power producer controlled by Syed Mokhtar Al-Bukhary, is planning an issue of as much as 5.4 billion ringgit, according to a Nov. 26 stock exchange filing.

Companies rushing to raise money before tightening by Bank Negara Malaysia and the Federal Reserve led to an increase in enquiries, according to CIMB Group Holdings Bhd. and RHB Capital Bhd., the second and third-largest ringgit sukuk underwriters of 2013. Inflation accelerated to 2.8 percent in October, the fastest pace in 22 months, while interest-rate swaps signal the central bank will boost borrowing costs for the first time since May 2011.

“Issuers see a window of opportunity and want to lock in rates before they start rising,” Badlisyah Abdul Ghani, chief executive officer at CIMB Islamic Bank Bhd., the Shariah- compliant unit of CIMB Group, said in a telephone interview yesterday. “Issuers are refinancing because borrowing costs in Malaysia have stabilized.”

Binariang last sold Islamic bonds maturing in five to 50 years in 2007. It issued 2017 securities at a coupon rate of 6.1 percent and 15-year notes at 7.1 percent. Average yields on top- rated Malaysian corporates were 4.38 percent yesterday, compared with an average of 4.61 percent in 2007 when the global financial crisis froze credit markets, according to a central bank index.

Swaps Climb

The company’s Ananda Krishnan is Malaysia’s second-richest man with estimated assets of $8.8 billion, according to the Bloomberg Billionaires Index. The corporation is rated A2 by RAM Rating Services Bhd., the sixth-highest investment grade.

One-year interest-rate swaps climbed to 3.26 percent this year, compared with the 2013 low of 3.15 percent in May and exceeding Bank Negara’s 3 percent overnight policy rate. Eight of 17 economists surveyed by Bloomberg predict Governor Zeti Akhtar Aziz will raise the benchmark rate by at least 25 basis points before the end of the second quarter.

The prospect Zeti will tighten rates is “by no means a certainty” as policy makers will continue to seek to support economic growth, said Angus Salim Amran, the Kuala Lumpur-based head of financial markets at RHB Investment Bank Bhd., a unit of Malaysia’s fifth-biggest lender by market value.

‘Strong Proposition’

Malaysia’s Islamic government bond market is also showing investors’ concerns about inflation. The difference in borrowing costs between two- and 10-year securities, the most sensitive to expectations for consumer-price gains, widened 51 basis points this quarter to 121 basis points, the highest since at least June 2010, central bank indexes show.

The Bloomberg-AIBIM Bursa Malaysia Corporate Sukuk Index, which tracks the most-traded local-currency notes, gained 2.6 percent in 2013 to 104.97, the highest level since its inception in February 2012.

Global Islamic borrowing costs are starting to rise on odds the Fed will trim stimulus that’s driven inflows to emerging- market assets. Average yields climbed 95 basis points this year to 3.76 percent, poised for their first annual increase since 2009, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.

“We’ve spoken to a few of our established clients and they have indicated that refinancing is a very strong proposition given expectations of Fed tapering,” Angus Salim said in a telephone interview yesterday. “Some issuers will try to refinance before tapering manifests itself and yields start to go higher.”

Yields Normalize

Malakoff, which is seeking a listing and is rated two levels higher than Binariang at AA3, plans to sell Islamic bonds with maturities of one to 18 years, according to the exchange filing. Syed Mokthar owns more than 50 percent of MMC Corp. and DRB-Hicom Bhd., which have a combined market value of 13.3 billion ringgit, data compiled by Bloomberg show.

The company sold 9.3 billion ringgit of sukuk last year with maturities ranging from one to 30 years to refinance debt and for plant expansion, according to data compiled by Bloomberg. The coupon rate on the 10-year securities was 4.84 percent, while the 2032 debt was issued at 6.2 percent.

Binariang will make a decision on its planned sukuk offering before year-end, said the person who asked not to be named as the details are private. Chan Chee Beng, a director at the Kuala Lumpur-based company, couldn’t be reached by telephone yesterday and didn’t respond to an e-mail seeking comment.

“Everyone knows that the Fed will have to taper no matter what as we have had low global rates for too long,” Lam Chee Mun, a fund manager at TA Investment Management Bhd. overseeing 680 million ringgit, said in a telephone interview. “Global yields will start to normalize because of the recovery in the U.S. and globally.”