Friday July 13, 2012

SC chief: Bonds for retail investors soon

KUALA LUMPUR: A framework to facilitate the offering of bonds to retail investors is currently in the final stages of development and will be introduced shortly, according to Securities Commission (SC) chairman Datuk Ranjit Ajit Singh.

“While the retail segment currently has access to the bond market via bond funds, the SC has been working towards greater financial inclusion in the bond market to attract foreign investors and increase direct access into the bond market for retail investors,” he said in his keynote address at RAM Annual Bond Conference entitled “Making the Asian Bond Market a Reality”.

“In this regard, the SC has been collaborating with the industry to promote retail participation,” he added.

According to the SC, allowing direct retail participation was one of the measures that could promote growth of the domestic bond market.

Bonds framework: Securities Commission chairman Datuk Ranjit Ajit Singh (centre) having a light banter with former Bank Negara deputy governor Tan Sri Lin See Yan and RAM Holdings chairman Tan Sri Siti Norma Yaakob at the RAM Annual Bond Conference in Kuala Lumpur entitled ‘Making the Asian Bond Market a Reality’.

Ranjit noted that to bring Malaysia’s bond market to the next level of growth and competitiveness, all stakeholders needed to focus on several key areas of development, which included promoting retail participation and widening issuer base.

Widening the issuer base, he said, could be achieved through greater product innovation to expand the current product range to include, for example, bonds with variable features that would suit the specific needs of the issuers.

In addition, there was also a need for a change in mindset with regards to the types of financing that could be appropriately satisfied via bond funding.

“The challenge is for us and the market to explore bonds as a viable means of financing smaller and relatively shorter-term projects undertaken by the small and medium-sized companies as well as those operating in niche segments,” Ranjit said.

“I believe that credit guarantee institutions have a significant role to play in widening the credit spectrum as it enables smaller and lower-rated issuers to access the bond market since these guarantees provide investors comfort on the viability of an issuer,” he added.

Ranjit argued that Malaysia needed to build on its strength in the bond market to be able to provide a sound platform for issuers and investors across the region to tap into its capital market, and to contribute towards achieving the objective of establishing an Asian bond market.

“With Malaysia’s early mover advantage and as the third largest bond market in Asia, Malaysia has certainly all the credentials to play a significant lead role in the development of the Asian bond market.

“We are already seeing signs of growing cross-border activities on-shore as there are increasing numbers of foreign issuers and international investors participating in the Malaysian bond market,” he pointed out. “This shows that the fundamentals and the infrastructure of our bond market are able to support these activities.”

However, existing cross-border issuances are still largely denominated in ringgit, and as such, there is an opportunity for us to promote the issuance of multi-currency bonds in Malaysia,” he explained.

Malaysia’s bond market had registered impressive growth over the years. The overall bond market grew almost seven times from RM137bil in 1997 to close to RM1 trillion at present. Correspondingly, the corporate bond market had grown by six times to a staggering amount of RM382bil from RM63bil. As of May 2012, the holdings of foreign investors amounted to RM185bil or 19.8% of total outstanding bonds. This was in stark contrast to the RM29bil foreign investments recorded at the end of 2004.

The total issuance of bonds for the first half of 2012 had already exceeded RM60bil, which was already close to eclipsing the record level of RM70bil last year.

“Given this trend, we expect to see two consecutive years of record level issuances, which augur well for the Malaysian bond market,” Ranjit said.

“The issuance of RM30bil sukuk by PLUS Bhd in January 2012 is a particular milestone, as it represents the largest ever sukuk issuance in the world. This also further underscores the attractiveness of the Malaysian sukuk market, which currently accounts for more than two-thirds of global sukuk,” he added.

The SC viewed the sukuk market as the important segment to help Malaysia achieve exponential growth of its bond market. At present, sukuk made up about 63% of total corporate bonds outstanding in the country.

“Despite being a leading provider of Shariah-compliant products, Malaysia must continue to scale up, using our expertise to further expand offshore, and work with both regional partners and the private sector, to create a bigger and more integrated sukuk market” Ranjit said.

“The ample opportunities for sukuk to flourish further lie in the increasing acceptance of sukuk not only in Muslim-majority countries, but also in certain predominantly non-Muslim jurisdictions, which has created a new stream of demand for this product,” he noted.

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