Sunday, 8 June 2014
Bursa Malaysia may see more fund raising activity
Companies with funding needs may increasingly look to the stock market if Malaysia’s low interest rate regime comes to an end. And there are growing expectations that Bank Negara Malaysia (BNM) will raise the Overnight Policy Rate (OPR) by to 3.25% from 3% when its Monetary Policy Committee next meets in July.
Currently, the main sources of funding for companies are banks and the bond market. With interest rates on an uptrend, these two fund raising venues may become less attractive. The stock market, on the other hand, could see more fund raising exercises.
BNM’s latest statistics show that business loan applications have dropped by 10.6% in April from the previous year. Growth has actually been on a downtrend since January 2014.
While the pace of private debt securities (PDS) issuance has picked up in 2014 compared to the same period in 2013, this trend is unlikely to continue in the coming months. This is because companies issuing PDS would likely have to pay a premium to the current cost of borrowing to reflect the widely-anticipated OPR hike in July.
With bank loans and PDS being adversely affected by interest rates, a shift towards the stock market for capital raising seems natural especially when the FBM KLCI is trading near its all-time high of 1889.47 and investors are generally in a confident mood.
Read more in The Edge this week.