It was considered a huge success when Malaysia managed to raise US$1.5 billion sukuk two days ago. Wait a minute, what is sukuk? Well this is definition of sukuk, ‘Sukuk commonly refers to the Islamic equivalent of bonds. However, as opposed to conventional bonds, which merely confer ownership of a debt, Sukuk grants the investor a share of an asset, along with the commensurate cash flows and risk.’ The issuance was oversubscribed. It attracted an aggregate interest of over US$9 billion from a total investor base of 450 accounts. In brief, the confidence level of investors to this sukuk issuance is high and more people wanted to subscribe to it versus what Malaysia wanted to raise.
Imagine if Malaysia had wanted to raise US$1.5 billion but the sukuk was NOT wanted by the international investor community? I think the rating agencies would start downgrading us very soon. This is because currently, Malaysia is still rated under the ‘investment grade’ rating by all three major rating agencies. Of course just one month ago, one of the three, Fitch Ratings has announced publicly that Malaysia’s current lowest investment rating may be downgraded in the near future and the possibility is over 50 percent; very high. It rated Malaysia ‘A-‘ currently.
Meanwhile, Standard & Poors (S&P) said that it’s current view for Malaysia remains the same. It said the outlook on the long-term rating is stable. S&P also affirmed its ‘A-‘ long-term and ‘A-2’ short-term foreign currency sovereign credit ratings on Malaysia. At the same time, it also affirmed its ‘A’ long-term and ‘A-1’ short-term local currency ratings on Malaysia. Don’t worry if you do not know a lot about these ratings. If you get an A as a grade, you can briefly say you are doing fine. Perhaps not excellent but still fine. S&P also said that whatever weakness in the energy sector can be balanced by Malaysia’s fairly diversified and broad-based growth. Its ratings was also based on Malaysia’s strong external position which was result of many years of account surpluses.
Thus, for those who are holding cash and waiting for property bubble to burst, perhaps you may have to wait a little longer or perhaps you may want to aim at the luxury ones which with or without a crisis or rating downgrade, I think prices should soften. Even KLCC view ones would still not be able to escape the current huge supply and downtrend in transactions. Oh yeah, since everyone loves saying this, I will repeat this too. GST is also causing the current negative sentiment in everything, including the property market. Happy deciding your next course of action with the current small boost in confidence for Malaysia.
written on 18 Apr 2015
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