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Malaysia's funding markets face election shutdown
February 22, 2013 / 9:07 AM / 5 years ago

Malaysia's funding markets face election shutdown

* Few bond issues seen until polling day

* IPOs on hold after equities slide

* Foreign funds still supporting government bonds

By Kit Yin Boey and Daniel Stanton

Feb 22 (IFR) - Malaysia’s government has until the end of April to call a general election, but the country’s capital markets are already seizing up as investors fret about the outcome.

The ringgit sank to a three-week low against the US dollar on Thursday at 3.1020. The Kuala Lumpur stock index has slipped over 4% so far this year.

As local investors become jittery, bankers have mostly put a stop to IPOs and bond offerings, and few major financings are expected until after the polls.

Two government-backed companies are marketing new bonds, in a bid to raise funds before the balance of demand shifts out of their favour. But market participants warn they may be the last such deals before the market effectively closes.

Government-backed Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) priced a M$1.2bn (US$385.6m) issue on Thursday, while Aman Sukuk is expected to issue at least M$900m of new debt next week.

“I‘m hoping that everything related to the elections will get settled by the end of March, and then we can get back to normal business,” said one debt syndicate banker.

The coalition government, led by the United Malays National Organisation, is widely expected to dissolve parliament well ahead of the April deadline, but uncertainty over the timing - and the outcome - of the election has sent debt and equity investors to the sidelines.

The country’s main stock market dropped 2.4% on January 24, its worst day in 15 months, as rumours spread that the government could call an election that week. Polls must be held within 60 days after parliament is dissolved, setting a final deadline for the vote of June 27.

The Barisan Nasional coalition, along with its predecessor, has governed Malaysia since independence more than 50 years ago, but its majority slipped in the last general elections when opposition parties made surprising gains. With the next election looming, there are fears that the government may see its majority further eroded.

“No one wants to buy due to the high potential for volatility, just in case BN loses,” added one fund manager.

IPO MARKET ON HOLD

Only one company has completed a Malaysian IPO so far this year. Online insurance provider Tune Ins Holdings, which raised M$283.5m, had been due to start trading on February 22, but the listing was brought forward to February 20.

Some sources speculated that this had been done due to expectations that parliament would be dissolved on February 22. However, a banker close to the deal said that the change in listing date had been made because bookbuilding had finished two days earlier than scheduled.

A US$500m IPO of Westports Malaysia was initially planned for the first half but is now thought to be on hold.

The speculation alone is bad news for companies hoping to sell stocks in Kuala Lumpur. While Malaysia does not have the same strong pipeline seen last year, there are several trades waiting to come to market in the first half of the year, once the uncertainty over the election timing is resolved.

The largest is the listing of independent power producer Malakoff, which is expected to be around US$1bn in size, but others include the US$250m IPO of discount long-haul carrier AirAsia X, the US$400m IPO of Ranhill Energy and Resources, and a US$300m-$400m float of developer Iskander Waterfront.

An ECM banker said that, since late last year investors, even domestic funds, had been unwilling to make cornerstone commitments to deals ahead of the elections, making it unwise to push ahead with IPOs until the uncertainty was cleared up.

TEMPORARY HICCUP

In spite of the concerns, market participants expect volatility from any election outcome to be short-term.

Traders have reported an outflow of foreign funds from the equity markets, but fixed-income analysts remain confident that the volatility will have only a limited effect on Malaysian bonds.

Debt traders agree. They reported that foreign funds were still buying into Malaysian government securities, with more interest seen at the short-ends, driving yields for the three- and five-year notes down to 3.06% and 3.209%, respectively, last Tuesday.

In fact, foreign holdings of MGS have climbed to a record 44% in recent weeks. Traders have been reporting plenty of interest for dollar denominated bonds of Malaysian banks as well.

“Fundamentally, the country is still economically fine, so any impact will be from a kneejerk reaction,” said one local bond trader. (Reporting By Kit Yin Boey and Daniel Stanton; Editing by Timothy Sifert and Christopher Langner)

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