PETALING JAYA: Malaysia’s capital-raising environment is expected to become less conducive this year, according to MARC Ratings.

       This is amid rising financing costs as central banks scale back their monetary stimulus.The ratings agency also cautioned that the current trend of negative rating actions outpacing positive ones in MARC Ratings’ universe would prevail as rising financing costs weigh on corporates’ credit metrics.

       “This is especially the case for sectors that have been severely impacted by the lockdown measures and where the recovery will likely remain protracted,” it said in the 2022 Bond Market Outlook issued yesterday.

       Despite the market challenges, MARC Ratings projected corporate bond issuance to moderate slightly in 2022 to between RM100bil and RM110bil.

       With Malaysia’s economy expected to remain on track for recovery, this is expected to help buttress the sentiment for corporate bonds.

       On government bonds and sukuk, MARC Ratings predicted a higher gross issuance of the Malaysian Government Securities (MGS) and Government Investment Issues (GII) in 2022, at a range of RM160bil to RM170bil.

       “This is premised on the government’s projected budget deficit of RM97.5bil, as well as the RM65.3bil worth of MGS and GII that will mature in the same year. That said, we see an upside potential to our projection this year given the long-term economic scarring and lack of funding sources.”

       In 2021, total gross issuance of MGS and GII grew to RM163.9bil, compared with RM151.9bil in the previous year.

       The amount was lower than MARC Ratings’ projection of RM170bil to RM180bil, based on the upward revision in the government’s fiscal deficit estimate to 6.5% of gross domestic product from 5.4% initially.

       Of the total gross issuance in 2021, about RM128.5bil was raised through 37 public offerings, while the balance was raised through private placements and switch auctions.“Based on the 2022 MGS and GII auction calendar, a total of 36 public offerings will be conducted in 2022, of which 18 will be offered via MGS while the balance will be from the GII issues.

       “Given this, we estimate the average issue size for each public offering to be between RM3.7bil and RM4.2bil,” MARC Ratings said.

       Going into 2022, MARC Ratings expected an upward shift of the MGS yield curve with a flattening bias.

       It said the retreat in foreign holdings of local government debt would continue in the near term, along with a weakening ringgit as investors contemplate the timing and pace of the US monetary tightening.

       “Nevertheless, we believe that the rise in MGS yields would not be too significant in view of the widening yield spreads between MGS and major sovereign bonds which could be alluring to yield-seeking investors.

       “The presence of a large pool of domestic institutional investors will also lend some support to MGS,” according to the ratings agency.

       Meanwhile, MARC Ratings pointed out that concerns are rising globally that more supply side issues would push inflation and dampen the already fragile economic recovery.

       “As it is, several countries have already seen inflation rise to well above their monetary policy targets.

       “We opine that Bank Negara’s lift-off which could come in during the second half of 2022 to be ahead of the curve in dealing with rising prices and capital outflows,” it said.