The ringgit led gains in Asia after a debt-ridden state investment company struck a deal to sell its power assets and as an agreement by Saudi Arabia to help stabilise oil prices boosted the outlook for Malaysia’s finances.
China General Nuclear Power Corp agreed to purchase 1MDB’s Edra Global Energy Bhd for RM9.83 billion, a move that BIMB Securities Sdn Bhd said will ease concern over 1MDB’s debt.
Saudi Arabia will “cooperate with all oil producers and exporters, from inside and outside of the Organisation of Petroleum Exporting Countries (Opec), to preserve the stability of the market and prices,” according to a statement from the cabinet yesterday.
The ringgit strengthened 0.9 percent to 4.2665 a US dollar as at 10.16am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. While the currency has climbed 0.8 percent this month, the region’s best performer, it hass dropped the most in Asia this year as depressed Brent crude prices weigh on earnings for the net oil exporter.
“Relief provided by the 1MDB news is one possible reason” for the ringgit’s advance, said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “Another reason is the turnaround in oil prices overnight after Saudi Arabia repeated its intent to cooperate with Opec ahead of the Dec 4 meeting.”
1MDB bonds
Brent crude gained for a fifth day and extended its recovery from a two-month low. Malaysia derives about 22 percent of government revenue from the commodity.
1MDB, whose advisory board is headed by Prime Minister Najib Abdul Razak, announced plans in February to dismantle its assets after it drew criticism from lawmakers for accumulating about RM42 billion of debt in less than five years of existence.
The company came under further scrutiny after it almost defaulted on a loan and clouded the sovereign’s credit rating with its borrowings weighing on the government’s contingent liabilities.
The state investment company’s US dollar bonds rose on the announcement, with the yield on the 4.4 percent 2023 notes dropping 10 basis points to a four-month low of 6.48 percent, data compiled by Bloomberg show.
Government securities followed suit. The yield on Malaysia’s US currency debt due in 2021 fell four basis points to 2.96 percent and the 10-year yield declined three basis points to 3.45 percent.
The asset sale is supportive for Malaysia’s credit risk and investors will see it “as a hopeful sign of light at the end of the 1MDB scandal tunnel,” Tim Condon, ING Groep NV Asia research head in Singapore, wrote in a note today.
Five-year credit default swaps (CDS) will settle around 125 basis points, assuming oil prices average US$60 a barrel in the first quarter, he said.
The CDS contracts were at 175 points on Monday, having climbed to 247 in September, the highest in more than six years, CMA prices show. Brent crude was around US$45 today and is down from its 2014 peak of more than US$115.
- Bloomberg
