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Saturday July 25, 2009
More interest in corporatebonds
By YVONNE TAN
PETALING JAYA: Interest in the corporate bond market is slowly pickingup steam, according to Bond Pricing Agency Malaysia chief executiveofficer Meor Amri Meor Ayob.“Yes, interest is definitely returning.“Interest rates are at historical lows. It would be wise for companies tolock in such rates now,” he said.Latest data from Bond Pricing Agency, a provider of fair valuations onbonds, show bond and sukuk issuances, excluding those issued by theGovernment and Bank Negara, rose to RM28.47bil in the second quarter from RM20.75bil in the first.“People are beginning to re-look at the corporate bond market to raisefunds and expand, also because they do not want to be left out once theeconomy picks up again,” Meor Amri told
StarBizWeek 
via email.Interest rates, or the cost of funding, although not across the board, wereattractive now, he said.For example, for a
 AAA
corporate three-year tenure, the rate has gonedown by 36 basis points compared with six months ago.This implies that a AAA corporate bond issued today would incur a lower cost for the company, compared with one issued six months ago.While interest rates on corporate bonds are first benchmarked againstrisk-free bonds issued by the Government,which in turn follows the overallinterest rate set by the central bank, they are also dictated by acompany’s credit rating – the higher the rating, the lower the interest ratecharged on the bond.The difference in credit quality leads to credit spreads, which essentiallymean the difference in yields (for the investor) between differentsecurities due to credit quality.Credit spreads have narrowed in the past six months, reflecting an easingof risk aversion among investors and an increasingly positive creditenvironment.According to a recent note on the corporate bond market by RHBResearch, five-year 
 AAA-minus, AA-minus
and
 A-minus
credit spreadsnarrowed by 18.5 basis points (bps), 15.7bps and 14.4bps month-on-month in June, to close at 60.8bps, 143.8bps and 336.7bpsrespectively.Although spreads have narrowed from their historical high earlier thisyear, they are not expected to narrow significantly until there are clearer signs of economic recovery, Malaysian Rating Corp Bhd said recently.The rating house expects corporate bond issuances to be in the range of RM25bil to RM30bil with an upward bias this year as the momentum hasgathered pace since March due to lower risk aversion, narrowing spreadsand declining corporate yields.
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