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The Malaysian Bond Market
- Challenges and Opportunities in2003 and Beyond
The Malaysian Bond MarketThe Malaysian Bond Market
-- Challenges and Opportunities inChallenges and Opportunities in2003 and Beyond2003 and Beyond
Securities CommissionSecurities Commission
16 April 200316 April 2003
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Outline
Overview of the bond marketOverview of the bond market
Developmental framework for domesticDevelopmental framework for domestic
bond marketbond market
Regulatory efforts undertaken to developRegulatory efforts undertaken to develop
the bond marketthe bond market
Revised PDS and ABS GuidelinesRevised PDS and ABS Guidelines
Moving forwardMoving forward
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Malaysias bond market grew
by 19.4% over the last 6 years
to reach RM272.6 billion as at
end-2002
PDS grew at the faster rate of
18.9% as compared to 13.3%
for MGS during the same
period, underpinned by the
strong demand on the higher-
yield fixed income securities
This amount represents 81%of GDP in 2002 which makes
Malaysia one of the largest
domestic bond markets in
this region (ex-Japan)0
50
100
150
200
250
300
1997 1998 1999 2000 2001 2002
MGS
PDS
Quasi-Govt Bonds
Source : BNM Annual ReportSource : BNM Annual ReportSource : BNM Annual Report
RM billionRM billionRM billion
Overview of Malaysian bond market
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Regional comparison for domestic bond market(as a percentage of GDP at end-2000)
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Financing for private sector
1998
67%
25%
8%
Private DebtSecurities
Equity market
Bank loans
2002
51%
19%
30%
PDS emerged as the largest
source of private sector
financing in the aftermath of the
1997 financial crisis
In 2002 it provided RM36.2
billion or 51% of total gross
domestic funds raised by the
private sector compared to 67%
in 1998
This reduction in 2002 was
largely due to the active IPO
market last year
Going forward, PDS will remain
as a dominant and competitive
source of financingSource : BNM Annual ReportSource : BNM Annual ReportSource : BNM Annual Report
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Approval of PDS issues by the SC
Total PDS issues approved by the SC (July 2000 - December 2002)
0
20
40
60
80
100
120
140
160
Jul - Dec 00 Jan - Dec 01 Jan-Dec 02
Year
No.ofis
sues
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
RMm
illion
Conventional (No.) Islamic (No.)
Conventional (RM Million) Islamic (RM Million)
Total PDS issues approved by the SC (July 2000 - December 2002)
0
20
40
60
80
100
120
140
160
Jul - Dec 00 Jan - Dec 01 Jan-Dec 02
Year
No.ofissues
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
RMm
illion
Conventional (No.) Islamic (No.)
Conventional (RM Million) Islamic (RM Million)
Total PDS approvals from July
2000 to end-2002 have
displayed an increasing trend
Since 1 July 2000, the SC has
approved 308 PDS proposals
under the PDS and ABS
Guidelines, with a total
approved issuance limit ofRM112.84 billion
In 2002, the SC approved 171
PDS proposals, including 7
ABS proposals, whichamounted to RM56.0 billion.
34 of these approvals were
IPDS issues valued at RM17.6
billion or 31% of the total
approved size of PDS issues
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Approval of PDS issues by the SC (contd.)
Total PDS issues approved by the SC (July 2000 - December 2002)
0
20
40
60
80
100
120
140
160
Jul - Dec 00 Jan - Dec 01 Jan-Dec 02
Year
No.ofissues
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
RMm
illion
Conventional (No.) Islamic (No.)
Conventional (RM Million) Islamic (RM Million)
Total PDS issues approved by the SC (July 2000 - December 2002)
0
20
40
60
80
100
120
140
160
Jul - Dec 00 Jan - Dec 01 Jan-Dec 02
Year
No.ofiss
ues
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
RMm
illion
Conventional (No.) Islamic (No.)
Conventional (RM Million) Islamic (RM Million)
A significant amount of bonds
approved by the SC is rated A
and above. Out of the total 169rated PDS proposals approved
by the SC thus far, only 28
proposals (mostly debt
restructuring scheme) are
initially rated at BBB andbelow
54% of value of approved PDS
proposals thus far have
maturity periods of more than
7 years
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Converging credit spreads
-40
-30
-20
-10
0
10
20
30
40
AAA AA A BBB
Spread
(bp)
5Y 7Y 10Y
Net Change in Spreads Over Comparable MGS in 2002
Credit spreads for PDS over the
MGS continue to converge in 2002,
except for AAA-rated PDS
The tightening of these credit
spreads reflects gradual shift by
domestic investors to PDS that are
rated below AAA
However, on an overall basis, the
pace of tightening in credit spreads
for PDS has decelerated as
compared to those recorded in the
last few years
A small tightening of credit spreads
over US Treasury is also observed
in first quarter of 2003 for
Malaysian sovereign bonds that arecurrently rated BBB+/Baa2
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Outline
Overview of the bond marketOverview of the bond market
Developmental framework for domesticDevelopmental framework for domestic
bond marketbond market
Regulatory efforts undertaken to developRegulatory efforts undertaken to develop
the bond marketthe bond market
Revised PDS and ABS GuidelinesRevised PDS and ABS Guidelines
Moving forwardMoving forward
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SCs developmental framework for domesticbond market
Developer
Facilitator
SC
involvem
ent
Catalyst
Introducing efficient and
facilitative issuance process
Establishing reliable and efficient
benchmark yield curve Widening the issuers and
investors base
Improving liquidity in the
secondary market Facilitating the introduction of risk
management instruments
Hi
Market involvement HiLow
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Outline
Overview of the bond marketOverview of the bond market
Developmental framework for domesticDevelopmental framework for domestic
bond marketbond market
Regulatory efforts undertaken to developRegulatory efforts undertaken to develop
the bond marketthe bond market
Revised PDS and ABS GuidelinesRevised PDS and ABS Guidelines
Moving forwardMoving forward
ff
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Regulatory efforts undertaken to developRegulatory efforts undertaken to develop
the bond marketthe bond market
Introducingefficient andfacilitative
issuanceprocess
Establishingreliable and
efficient
benchmarkyield curve
Widening
issuers and
investors
base
Improving
liquidity in the
secondary
market
Facilitating
introduction
of risk
managementinstruments
Introduction of
auctioncalendar forMGS
Review ofprincipal
dealers system
Broadening of
investors baseunder theSchedule 2 and 3of SCA for OTCmarket
UBs are allowedto trade in OTCmarket
ABS is
introducedtogether with taxneutralframework
Release of PDS
and ABSGuidelines(revised on 30March 2003)
Release of
AssetSecuritisationReport
Introduction of
shelf regulationscheme
Introduction of
5 years MGSFutures
Non-financial
institutions areallowed to enter
into repo
transactions
SecuritiesBorrowing and
Lending
Programme is
introduced via
the RENTAS
system
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Thrusts towards revision of PDS & ABS
Guidelines
To make the issuance process more cost effective
and practical for issuers
To provide greater issuance flexibility & time-to-market
To rationalise and enhance information disclosure
SC aims to continuously review itsrequirements to be more facilitative of marketneeds
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Key Changes to PDS and ABS Guidelines
Facilitative requirements for debt programmes 7 year restriction removed for scripless stand-alone
MTN programmes 2 year period given for first draw-down instead of 6 mths
New disclosure requirements at each draw-down to aidinvestors
Clarity and flexibility to issuers Minimum level of subscription is not required if utilisation
is for working capital
Flexibility to issuers to adjust to market conditions byallowing for some types of information to be indicative,e.g. modes of issue
Some Syariah concepts and principles are furtherclarified
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Key Changes to PDS and ABS Guidelines
More streamlined issuance process
Overlaps with Issues Guidelines are clarified and there
is convergence of documents required under bothguidelines
Information required to be submitted is streamlined (e.g.
term sheets, declarations, removal of summarised ratingreports for ABS submissions)
For ABS, greater clarity in revised definitions for credit
enhancement, circumstances where originators may re-
purchase assets and circumstances where an SPV canbe dissolved
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Outline
Overview of the bond marketOverview of the bond market
Developmental framework for domesticDevelopmental framework for domestic
bond marketbond market
Regulatory efforts undertaken to developRegulatory efforts undertaken to develop
the bond marketthe bond market
Revised PDS and ABS GuidelinesRevised PDS and ABS Guidelines
Moving forwardMoving forward
F d l i h b d k dF t d l t i th b d k t d
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Future development in the bond market andFuture development in the bond market and
regulatory challengesregulatory challenges
The SC is seeing greater product innovation inbond market to meet new demands of issuers and
investors: Structured productswhere existing bonds and/or equity instruments are
repackaged as new investment product
ABSwhere non-typical structure e.g. synthetic securitisation
and wholesale securitisation may be introduced
Islamic securities
where principles such as ijarah and mudharabah maybe employed
The SC will engage the industry soon to create an
appropriate regulatory framework thataccommodates these new instruments
F t d l t i th b d k t dF t d l t i th b d k t d
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Future development in the bond market andFuture development in the bond market and
regulatory challengesregulatory challenges
There will be introduction of bond tradingportals that would allow bonds to be traded
electronically Benefits of price discovery and greater liquidity for the
bond market
There are issues in linkages with existing bond marketinfrastructure, ensuring investors protection andresolving overlapping legal provisions that governthese portals
The SC is working closely with BNM to developan efficient and facilitative regulatoryframework governing these trading portals
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Thank youhank you