Malaysia's Bond Insurance Drops to Three-Month Low on 1MDB Sales

  • Yield on 2025 government bonds retreats for third day
  • Ringgit declines following two days of oil-inspired gains

The cost of insuring Malaysian bonds against default dropped to a three-month low as planned sales of land and power assets by a debt-ridden state investment company boosted investor confidence.

1Malaysia Development Bhd. is finalizing the sale of a property project in Kuala Lumpur known as Bandar Malaysia and will clear its outstanding obligations to investors by year-end, New Straits Times reported Thursday, citing the firm’s President Arul Kanda. The company, which has come under scrutiny from lawmakers for accumulating around 42 billion ringgit ($10 billion) of debt in less than five years and for almost defaulting on a loan, agreed to dispose of its power assets to China General Nuclear Corp. on Monday for 9.83 billion ringgit.

Five-year credit-default swaps on the nation’s sovereign bonds declined four basis points to 169 as of 5:35 p.m. in Kuala Lumpur, the lowest since Aug. 27, according to CMA data. The yield on 10-year government notes fell one basis point to a three-week low of 4.19 percent, prices from Bursa Malaysia show. It has dropped 11 basis points since Monday.

“The sale of power assets has contributed positively to investor sentiment on Malaysia, resulting in a rally across CDS spreads and local-currency bonds,” said Winson Phoon, a Kuala Lumpur-based fixed-income analyst at Maybank Investment Bank Bhd. “I think the rally can continue in the near term.”

IMDB Investigations

The offloading of the power assets and the planned 60 percent sale of the Bandar Malaysia stake will help reduce the debt burden of 1MDB substantially and this, to a certain extent, will help alleviate concern about the contingent liability to the government, Phoon said. The yield on 1MDB’s $3 billion of 4.4 percent dollar notes due 2023 was little changed at 6.45 percent after falling 14 basis points over the previous two days, according to prices compiled by Bloomberg.

Malaysia to Complete 1MDB Investigations in Few Months

1MDB has been the subject of investigations amid allegations of financial irregularities, although an initial Auditor General’s report didn’t reveal any suspicious activity. Prime Minister Najib Razak, who heads the advisory board of the company, has resisted calls from ex-premier Mahathir Mohamad to step down over the fund’s performance.

The ringgit weakened 0.2 percent to 4.2215 a dollar at the close Thursday, after gaining 2.1 percent in the past two days amid a rally in Brent crude, prices from local banks compiled by Bloomberg showed. The currency is this year’s worst performer in Asia, falling 17 percent, as a decline in the commodity cut earnings for the region’s only major net oil exporter.

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