CMP2 widens access to the bond market


KUCHING: The development of significant bond market provided critical long-term financing to many large-sized and catalytic economic projects, resulting in Malaysia having one of the best infrastructures in the region, ranging from international airports and highways to power plants and telecommunications.

BOND ISSUANCES: Malaysia’s bond market is ranked the third largest bond market in Asia in terms of GDP.

Securities Commission’s (SC) Capital Market Masterplan 2 (CMP2) pointed out that the bond market had also been a source of financing support for banks and corporations and provided liquidity to balance sheets through the securitisation of mortgages and other receivables.

Malaysia’s bond market was relatively well-developed with outstanding bond issuances accounting for approximately 97 per cent of gross domestic product (GDP). It was ranked the third largest bond market in Asia in terms of GDP.

According to the masterplan, market depth was reflected by an average weighted bond tenure of 16 years and an average issuance size of RM670 million, while market width was reflected by the diversified range of conventional and Islamic instrument.

In tandem with the economic transformation plans, there was a need to broaden the capability and capacity of the bond market to supply financing to a wider base of industries and projects, particularly in supporting the structural shift towards the services and knowledge-based industries.

The ability to widen access to bond financing for more sophisticated ventures was critically dependent on broadening the investor base and appetite for a wider array of debt products and credit risks, said SC.

Widening the credit spectrum therefore required strengthening investor confidence, increasing the participation of the public and private investment management industry, expanding the product range and enhancing the market infrastructure.

Towards, the end, market standards and practices would be enhanced through improving documentation and disclosure standards as well as clarifying post-issuance disclosure obligations and requirements. The credit rating agency (CRA) framework would be further enhanced to converge with new international standards and best practices covering key areas such as transparency of rating criteria and policies.

The default process for bonds would also be reviewed to provide greater clarity and certainty to investor. In tandem with this, efforts would be made to promote a more active market for the pricing of distressed issues, SC pointed out.

“The participation of the public and private sector investment management industry in fixed income investments needs to be further strengthened. This require building their fixed income investment capabilities to enable their participation in a broader spectrum of structures and credits,” it added.

Efforts would also be made to promote greater retail participation in the bond market through developing a framework to facilitate the offering of corporate bonds to retail investors, covering the eligible issuers base, mode of offering, format of offering documents, price transparency, investor protection and education activities.

In addition, distribution channels would be widened to enable greater retail investment. The masterplan also stated that further mechanisms would be considered to widen participation and deepen liquidity in the bond market.

“The establishment of Danajamin Nasional Bhd provided a means for less-established companies to gain access to the bond market and to establish their track record for credit-worthiness while a review will be undertaken to assess the viability of establishing facilities to mitigate illiquidity risks of bond funds,” it concluded.