The Star Online - DanaInfra to tap 3-year low borrowing costs

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It plans to offer RM2bil of government-guaranteed Islamic bonds

KUALA LUMPUR: The financier of a subway in Malaysia’s capital is seeking to tap the Islamic bond market for the second time this year after domestic borrowing costs fell to a three-year low.

DanaInfra Nasional Bhd planned to offer RM2bil of government-guaranteed Islamic bonds this week after selling RM4.5bil of sukuk in April, people familiar with the matter said.

The proceeds will be used to help finance construction of the nation’s mass rail transit system, part of Prime Minister Datuk Seri Najib Tun Razak’s US$444bil development programme.

The company sold 10-year syariah-compliant notes to yield 4.29% in April and the debt yielded 4.09% when it last traded on Aug 25, data compiled by Bloomberg show.

Malaysia’s government securities, also known as MGS, rallied as the nation’s central bank unexpectedly reduced the overnight policy rate by 25 basis points in July. The note due 2026, a benchmark used by issuers, dropped 58 basis points this year to 3.59% and reached a three-year low of 3.47% on Aug 16.

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Traders are betting the Federal Reserve won’t raise interest rates until December at the earliest as investors weigh the strength of the US economy in the aftermath of the UK’s June vote to leave the European Union and before the presidential election in November.

“Yields will be lower than April’s tap as MGS rallied strongly since then,” said Fakrizzaki Ghazali, a senior fixed-income analyst at Sedco Capital in Jeddah. “The Brexit decision in June was the turning point, which was followed by an overnight policy rate cut in July, while mixed data and the US presidential election might delay Fed tightening.”

Malaysia, which pioneered Islamic finance in the 1980s, is the world’s biggest sukuk market. Banking assets that comply with religious tenets in the South-East Asian nation climbed to a record billion ringgit, or 27% of the nation’s total, in 2015, according to central bank data.

Demand for bonds linked to the subway is likely to remain resilient, thanks to Malaysia’s deep capital markets and domestic liquidity, Fakrizzaki said.

DanaInfra would be selling syariah-compliant bonds with maturities of seven to 20 years and has an option to raise the offering, said the people who asked not to be identified as the process is private.

“We are not able to comment or provide any information before the issuance,” the company said in an e-mail in response to queries seeking comments.

Apart from the domestic rate cut, borrowing costs have also remained low because of weak supply, said Edward Iskandar Toh, chief investment officer for fixed income at Areca Capital Sdn Bhd, which oversees RM500mil.

He predicts DanaInfra will probably offer 4% to 4.15% coupons on its 10-year sukuk this week as demand from pension funds and insurers is expected to be healthy.

Winson Phoon, a fixed-income analyst at Maybank Investment Bank Bhd, agreed. “The yield curve has shifted noticeably lower since April,” he said, adding 4.1% is where “the 10-year bonds sit on our government-guaranteed curve.” — Bloomberg