Published January 8, 2009

KL may sell RM73b bonds to fund stimulus package: CIMB

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(KUALA LUMPUR) Malaysia will sell a record amount of bonds this year to fund economic stimulus spending and may offer its first foreign-currency bonds since 2002, according to CIMB Investment Bank Bhd.

The Finance Ministry will probably sell a record RM73 billion (S$30.6 billion) of securities as revenue trails spending for an 11th straight year, said Lum Choong Kuan, head of bond research at CIMB, a unit of Bumiputera-Commerce Holdings Bhd, the second-largest banking group.

'A wider deficit will necessitate a bigger bond sale,' he said in an interview on Tuesday. 'In this environment of slowing growth, slowing inflation and interest-rate cut hopes, demand for bonds will be strong.'

Malaysia and other regional governments are considering more stimulus programmes as recessions in the United States, Europe and Japan cut demand for Asian exports. South Korea plans to sell 23 per cent more bonds in January from a year earlier. China may lift debt sales by 60 per cent to 1.3 trillion yuan (S$279.7 billion) in 2009, said Chinabond, the country's biggest debt-clearing house.

CIMB forecasts benchmark three-year bonds to yield 2.8 per cent in the first quarter, 2.9 per cent for five-year notes and 3.1 per cent for 10-year securities.

Ringgit-denominated government bonds handed investors an 8 per cent return in 2008, the most since 2001, according to indices compiled by HSBC Holdings plc. Three-year yields reached a seven-year low of 2.74 per cent on Jan 2, falling from as high as 4.3 per cent in 2008, according to Bloomberg data.

Mr Lum said the government may also sell bonds denominated in US dollars or euros this year, to set a new benchmark borrowing cost. It last sold debt overseas in July 2002 by offering US$600 million of five-year syariah-compliant securities.

Malaysia's budget deficit will likely remain at 4.8 per cent of gross domestic product, the government said in a revised budget in November 2008, when it unveiled a RM7 billion stimulus plan to prevent a deeper slowdown.

Corporate bond issuance may decline to as little as RM25 billion from RM39 billion in 2008, as companies are likely to delay investment plans, Mr Lum said. -- Bloomberg