Ringgit Gains Most in Asia, Bonds Rise on $2.3 Billion 1MDB Sale

  • Edra sale to China General step closer to winding down company
  • Ringgit also supported by Saudi Arabia pledge to stabilize oil

Malaysia’s ringgit rose the most among emerging-market currencies, while stocks and bonds gained, after a debt-ridden state investment company struck a $2.3 billion deal with China to sell its power assets.

The currency closed at a one-month high and the FTSE Bursa Malaysia KLCI Index rallied for a fourth day, the longest stretch since October, after China General Nuclear Power Corp. agreed to purchase 1Malaysia Development Bhd.’s Edra Global Energy Bhd. The government’s U.S. currency bonds rose along with 1MDB’s securities.

The asset sale takes 1MDB a step closer to winding down its operations amid criticism from lawmakers over 42 billion ringgit ($9.9 billion) of debt accumulated in less than five years. The ringgit was also supported by an agreement by Saudi Arabia to help stabilize oil prices, which have fallen by more than half from a 2014 peak and hurt Malaysia’s export earnings.

“Given the fact that sentiment was one of the negative factors affecting the ringgit, the fact that China was injecting money into 1MDB would help to boost confidence,” said Leong Sook Mei, Southeast Asia head of global markets research at Bank of Tokyo Mitsubishi UFJ in Singapore. “At this point in time, it’s early days.”

The ringgit strengthened 1.3 percent to 4.2495 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. While the currency has climbed 1.2 percent this month, making it Asia’s best performer, it has dropped the most in the region in 2015 as depressed Brent crude prices weigh on the oil-exporting nation’s finances. The KLCI index rose 0.5 percent.

1MDB Bonds

1MDB, whose advisory board is headed by Prime Minister Najib Razak, announced plans in February to dismantle its assets to appease lawmakers. The company came under scrutiny after it almost defaulted on a loan and clouded the sovereign’s credit rating. Najib has also found himself embroiled in a political scandal over a donation he received from the Middle East, which was initially said to be connected to the state firm until an investigation from the Malaysian Anti-Corruption Commission found otherwise.

The yield on the company’s 4.4 percent 2023 dollar bonds dropped 13 basis points to a four-month low of 6.45 percent, data compiled by Bloomberg show. The yield on the government’s U.S. currency debt due in 2021 fell seven basis points to 2.93 percent and the 10-year yield declined four basis points to 3.44 percent.

The asset sale is supportive of Malaysia’s credit risk and investors will see it “as a hopeful sign of light at the end of the 1MDB scandal tunnel,” Tim Condon, ING Groep NV Asia research head in Singapore, wrote in a note Tuesday.

The cost to insure the nation’s sovereign debt for five years will drop to around 125 basis points, assuming oil prices average $60 a barrel in the first quarter, Condon said. The credit-default swaps fell two basis points to 173 on Tuesday, having climbed to 247 in September, the highest in more than six years, CMA prices show.

Saudi Arabia will “cooperate with all oil producers and exporters, from inside and outside of OPEC, to preserve the stability of the market and prices,” the Cabinet said in a statement on Monday. Brent crude gained for a fifth day and extended its recovery from a two-month low to about $45.

(An earlier version of this story was corrected to show the number of days the KLCI index has gained.)

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