Ringgit climbs with stocks as 1MDB's asset sales buoy finances

[KUALA LUMPUR] The ringgit headed for the longest stretch of gains in a month and stocks rose on optimism debt-ridden state investment company 1Malaysia Development Bhd is close to finalising the sale of property assets for US$2.6 billion.

Singapore's Straits Times reported on Monday that a group consisting of China Railway Engineering Corp. and Iskandar Waterfront Holdings Sdn. are the frontrunners to take a controlling stake in the development known as Bandar Malaysia in Kuala Lumpur for more than 11 billion ringgit. That comes on the heels of 1MDB's agreement with China's General Nuclear Power Corp. last month to offload its power assets for 9.83 billion ringgit.

The sales may help appease lawmakers who have criticized 1MDB, whose board is chaired by Prime Minister Najib Razak, for accumulating 42 billion ringgit (S$14 billion) in debt in less than five years. The contingent liabilities referred to by Fitch Ratings when it warned of the risk of a credit-rating downgrade earlier in the year have weighed on sentiment for Malaysia, and along with oil's decline have helped make the ringgit Asia's worst-performing currency in 2015.

"The fact that 1MDB is close to selling its stake in Bandar Malaysia is another reason to be less dire about 1MDB and the outlook for Malaysian assets," said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd., the third-most accurate forecaster of the ringgit in the four quarters ended Sept. 30. "The contingent-liability aspect becomes a less pressing risk for Malaysia." The ringgit strengthened 0.5 per cent to 4.2067 a dollar as of 10:53 a.m. in Kuala Lumpur for a third day of gains, according to prices from local banks compiled by Bloomberg. It's 0.4 per cent off a seven-week high reached on Friday. The FTSE Bursa Malaysia KLCI Index of shares added 0.3 per cent, its first increase in almost a week.

1MDB President Arul Kanda said in August he plans to raise some 12 billion ringgit from the Bandar Malaysia sale. The company is in the final stages of selling its 60 per cent stake and a deal could be announced this week, the Straits Times reported, without saying where it got the information. Before the firm announced in February that it planned to wind down its operations, it had come under scrutiny after almost defaulting on a loan.

Optimism over the asset sales helped shield ringgit from a selloff in Brent crude, which extended losses after the Organization of Petroleum Exporting Countries failed to make any agreement on production cuts, and instead abandoned a long-time strategy of limiting output to control prices. The cost of the commodity has fallen 25 per cent this year, weighing on the finances of Malaysia, which is Asia's only major net oil exporter.

The cost of insuring Malaysia's government bonds has dropped from the year's high of 247 basis points in September. Five-year credit-default swaps fell two basis points to 175 on Friday, approaching the three-month low of 168 reached in November, CMA prices show. Ten-year notes were little changed Monday, with the yield at 4.21 per cent.

BLOOMBERG