Malaysia will sell 30-year bonds for the first time in its longest-maturity offering to set a benchmark for companies raising funds under Prime Minister Najib Razak’s $444 billion development program.
The government will sell 2.5 billion ringgit ($776 million) of 2043 notes tomorrow, according to the central bank’s website. Pre-market trading showed bid to offer yields were 4.35 percent to 4.75 percent today, said Michael Chang, head of fixed income at MCIS Zurich Insurance Bhd. in Kuala Lumpur. Similar-maturity U.S. Treasuries were paying 3.67 percent and 30-year Thai debt 4.6 percent, data compiled by Bloomberg show.
The maturity extension will add more depth to the region’s biggest bond market given that Thailand and Indonesia already have debt maturing in 30 years or beyond, Chang said. Highway operator PLUS Bhd. is only the second Malaysian company to have issued securities due in more than 25 years, along with sovereign wealth fund 1Malaysia Development Bhd., as Najib embarks on a 10-year spending spree to build roads, railways and power plants.
“The offering will help facilitate project financing,” Soo Seohan, head of debt capital markets at AmInvestment Bank Bhd., Malaysia’s second-biggest bond arranger this year, said in an interview in Kuala Lumpur yesterday. “Demand will be there given that insurance companies and pension funds need to match their assets with liabilities.”
Chang said he’s keen to buy the debt because it’s an inaugural issue.
Yields on 20-year notes, currently the longest government maturity in Malaysia, are falling three times as fast as rates on three-year debt this month. Long-term securities are more sensitive to expectations for consumer prices, which rose 1.9 percent in August, compared with 2 percent in July and 1.2 percent in December when the 30-year bond plan was announced.
The extra yield investors demand to hold the 20-year government notes over those due in three years narrowed 24 basis points to 78 in September, according to data compiled by Bloomberg. That’s down from 2013’s high of 120 on Sept. 4.
“Given that inflation is expected to rise further, we would only be interested in the 30-year bonds if the yields are above 5 percent,” Lam Chee Mun, a Kuala Lumpur-based fund manager at TA Investment Management Bhd., which oversees around 650 million ringgit, said in an interview yesterday. “At the moment, we feel that other asset classes give better returns.”
Longer-term bonds are more viable for countries building infrastructure because you get a maturity mismatch if your fundraising is in the short end, Iwan Azis, head of the Asian Development Bank’s regional economic integration office in Manila, said in a Sept. 23 phone interview.
“If Malaysia is doing successfully, then I’m pretty sure other neighboring countries will follow suit,” Azis said.
Malaysia’s currency rebounded in September following four straight months of losses. The ringgit appreciated 1.8 percent from Aug. 30 to 3.2253 per dollar as of 10:30 a.m. in Kuala Lumpur today. Still, it’s the third-worst performing exchange rate in Southeast Asia this year with a 5.2 percent loss after Indonesia’s rupiah and the Philippine peso.
Thailand sold 50-year debt, Southeast Asia’s longest-maturity sovereign notes, in December 2010. The maximum government debt duration in the Philippines is 25 years and 15 in Vietnam, data compiled by Bloomberg show. In Singapore, it’s 30 years. Those bonds yielded 3.16 percent yesterday, compared with 3.51 percent at the end of August.
Malaysia had $314 billion of debt outstanding as of June 30, compared with $286 billion in Thailand, $118 billion in Indonesia and $95 billion in the Philippines, according to report from the Asian Development Bank this week.
The government’s development spending helped contribute to one of the highest levels of debt in Southeast Asia at 53.3 percent of gross domestic product, compared with 23 percent in Indonesia, 51.5 percent in the Philippines and 44.5 percent in Thailand, according to data compiled by Bloomberg.
Malaysia and Singapore spent 2.3 percent of their GDP on infrastructure in 2011, compared with 1.5 percent in Thailand and 1.6 percent in the Philippines, the ADB report said.
The cost to insure Malaysian government bonds for five years dropped 28 basis points, or 0.28 percentage point, to 122 this month, CMA default prices show. That’s down from the 2013 high of 157 on Aug. 27.
Issuance of bonds in the nation dropped 60 percent to 37.8 billion ringgit this year, according to data compiled by Bloomberg. Sales reached a record 117.8 billion ringgit in 2012 as companies raised funds to help finance projects under the government’s economic transformation initiative.
“Malaysia’s 30-year bond will extend the yield curve and deepen the local market,” Jason Chong, who oversees $1 billion as chief investment officer at Manulife Asset Management Services Bhd., said in a Sept. 23 interview in Kuala Lumpur.