Economists confident Malaysian sovereign bonds will continue to be a hit

PETALING JAYA: Economists are confident that the Malaysian government will pass the litmus test of investor confidence with any sovereign debt issuance, citing the continued attractiveness of the country's debt notes with greater fiscal prudence, transparency and commitment to reducing the fiscal deficit.
Finance Minister Lim Guan Eng announced today that the government would be looking to issue debt notes and monetise non-critical and non-strategic assets by selling shares and land, as well as by leasing of idle assets and buildings.
Malaysian Institute of Economic Research senior research fellow Dr Shankaran Nambiar told SunBiz investor confidence is expected to be positive and there would be ready buyers for Malaysian bonds especially with the government's openness to the state of debt in the country, its fiscal position and its determination to keep the fiscal deficit under control.
"Debt issuance is a very sensible thing to do under the circumstances, i.e. when the level of debt is high, there is a shortfall in tax revenue and the government may not be able to tighten its belt beyond a point. The last reason makes more sense in the face of a possibly contracting global market," he noted.
Sunway University Business School professor of economics Dr Yeah Kim Leng noted that investors are often on the lookout for high-quality bond yields and given the recent decline on foreign holdings on Malaysian bonds, there is still room to further increase the holdings without an undue concern of high foreign holdings.
Besides just being a cost-effective way to raise funds as opposed to borrowings, he opined that the government could also utilise this opportunity to convert its outstanding debts to bonds.
Ratings on the debt security will also play a role in determining the attractiveness of the government's debt security, especially in a backdrop of stricter fiscal discipline by the government.
Yeah said the rule of thumb for investors when it comes to sovereign bonds is when a country's debt stands between 60% and 80% of the gross domestic product, for which he said Malaysia has not reached an alarming level.
"A more concrete plan and further forward guidance on fiscal management strategies are well sought-after by investors in Malaysia's sovereign bonds, and so so this along with more details unveiled in Budget 2019 will act as a positive for the bond market," RAM Rating Service Bhd head of research/economist Kristina Fong told SunBiz.
On asset monetisation, Yeah said any sale made should be done on the basis of competitive bidding with a reserve price and valuation established by independent experts.
"It shouldn't be rushed; when we rush, it can be considered a forced sale. Normally, the value of a forced sale will be much lower, so potential buyers will unlikely pay the full price," he added.
Meanwhile, Lim gave an assurance that any asset monetisation will be carried out in compliance with the highest standard of governance and transparency without disruption to the business community and the people.
"A mixed policy strategy has many stakeholders and we will ensure that they are all engaged and considered to ensure a thorough and balanced fiscal strategy that minimises negative impacts.
"At the same time, these stakeholders must realise the goal of the government in achieving a strategy that benefits the nation and the rakyat as a whole," he said.