Role of Credit Rating Agency in Malaysian Bond Market Afri Africa - - PowerPoint PPT Presentation

▶
role of credit rating agency in malaysian bond market
SMART_READER_LITE
LIVE PREVIEW

Role of Credit Rating Agency in Malaysian Bond Market Afri Africa - - PowerPoint PPT Presentation

Mar 26, 2024 205 likes •516 views

Role of Credit Rating Agency in Malaysian Bond Market Afri Africa can n Union Union f for or Hou Housing sing Fin Finan ance ce Con Confer eren ence ce Dar Es Salaam, 8 October 2012 Chong Kwee Siong Technical Advisor, Group CEO

slide-1
SLIDE 1

Role of Credit Rating Agency in Malaysian Bond Market

Afri Africa can n Union Union f for

  • r Hou

Housing sing Fin Finan ance ce Con Confer eren ence ce

Chong Kwee Siong Technical Advisor, Group CEO Office RAM Holdings Berhad Dar Es Salaam, 8 October 2012

slide-2
SLIDE 2

Financial Marketplace

Capital Market

Equity Corporate Securities Equity Linked Derivatives Debt Private Debt Market Bonds Sukuk Public Debt Market Gov Bonds Quasi-Gov Bonds Banking System

2

slide-3
SLIDE 3

Disintermediation Mobilise savings for capital formation Mitigate currency and tenure mismatch Reduce systemic risk

Benefits of a vibrant local currency bond market

slide-4
SLIDE 4

Malaysia LCY bonds issued: USD167bn (2011)

4

slide-5
SLIDE 5

Malaysia Outstanding LCY bonds: USD294bn (June2012)

5

slide-6
SLIDE 6

Malaysia LCY bonds market: 102% of GDP (June 2012)

Size of Malaysian Domestic Bond Market (% of GDP)

Source: asianbondsonline

6

slide-7
SLIDE 7

Malaysia 2nd largest bond market in Asia ex-Japan

Domestic Bond Markets in Asia (ex-Japan)

Source: asianbondsonline

7

slide-8
SLIDE 8

Bond market an important component for capital formation

Pre-Crisis As a % of GDP Equities Bank Loans PDS

1995 1996 1997 254.2% 318.0% 133.4% 133.2% 125.8% 142.6% 10.2% 13.2% 16.5%

As a % of GDP Equities Bank Loans PDS

1998 1999 2000 132.2% 183.8% 129.9% 139.6% 125.5% 116.0% 16.5% 25.7% 29.4% 2001 139.0% 123.0% 37.2%

Post-Crisis

Domestic Financing Profile

41.2%

June 2012 

8

slide-9
SLIDE 9

Malaysian Experience

Development Catalysts Privatisation: Increased private sector financing demand due to privatisation and emphasis on private sector-led growth Infrastructure Development: Huge increase in capital financing requirement especially for infrastructure development. Bonds could be structured to match longer tenure requirements Corporate debt restructuring: Provide long term financing to address funding mismatches Financial Sector Liberalisation: Efficiency gains from disintermediation and competition - cheaper funding for companies issuing bonds and better returns for investors Fill the missing segment of the risk-return investment spectrum: fixed income instruments in addition to FD and Equity

9

slide-10
SLIDE 10

Wide base of institutional investors

LCY Government & Corporate Bonds Investor Profile

10

slide-11
SLIDE 11

Regulatory & Market Reform Measures

Infrastructure & Institutional Building

  • Cagamas
  • RAM, MARC
  • Mandatory ratings
  • Malaysian Institute
  • f Bond Dealers
  • RENTAS
  • Bond Pricing Agency

Malaysia

Regulatory Framework

  • Guidelines for PDS
  • Guidelines for ABS
  • 1993: Securities

Commission

  • 1999: National Bond

Market Committee

  • Guidelines for Sukuk
  • Guidelines for REITs
  • Capital Market

Master Plan

Fiscal & Financial Incentives

  • Tax exemption
  • Stamp duty waivers
  • Reduction in

withholding tax

11

slide-12
SLIDE 12

Rationale for establishing RAM

  • A “missing link”

institution in financial system

1

  • Independent

provider of credit

  • pinions

2

  • Developmental role

for the bond market

3

credit ratings

Market education, training, credit culture, talent development, information dissemination, etc.

12

slide-13
SLIDE 13

“An objective and impartial opinion on: the ability and willingness of an entity to make full and timely payments of all its financial obligations,

  • r

creditworthiness of a particular debt obligation”

What are credit ratings?

13

slide-14
SLIDE 14

What it is NOT

Ratings do not measure…

Prepayment risk of the security Market price of the security Fraud Rating changes A recommendation to buy or sell investments An audit Any measure of defining good or bad companies

14

slide-15
SLIDE 15
  • Provision of aggregate information about the credit

quality of sovereign entities, corporations, financial institutions, and their related debt offerings (“Information function”)

  • Accessibility to global and domestic markets given the

familiarity and widespread acceptance of credit ratings as a common yardstick for measuring credit risks and their continuous surveillance by CRAs (“Monitoring function”)

  • Enhance liquidity through widening of investor pool

through the widespread use of credit ratings (“Certification function”)

Functions of credit ratings

slide-16
SLIDE 16

Applications of credit ratings

Issuers & counterparties

  • Supports disclosure &

transparency

Investors

  • Common measure of

credit risk to help make investment decisions

Regulators

  • Help bridge information

gap between issuer and investors

  • Provides independent

peer comparisons

  • Enhances terms and

conditions of borrowing

  • Enhances access to

new sources of funds

  • Independent third party
  • pinion
  • Assist in portfolio

monitoring

  • Benchmark for risk

premium

  • Distill complex financial

instruments into user- friendly rating symbols

  • Promotes a more

efficient capital market

  • Help eliminate

asymmetric information

  • Facilitate implementation
  • f risk frameworks

16

slide-17
SLIDE 17

Applications of credit ratings

Yield curves and spreads Systematic relationship between credit ratings and yields

2 4 6 8 10 12 14 3-Jan-06 3-Apr-06 3-Jul-06 3-Oct-06 3-Jan-07 3-Apr-07 3-Jul-07 3-Oct-07 3-Jan-08 3-Apr-08 3-Jul-08 3-Oct-08 3-Jan-09 3-Apr-09 3-Jul-09 3-Oct-09 3-Jan-10 3-Apr-10 3-Jul-10 3-Oct-10 3-Jan-11 3-Apr-11 3-Jul-11 3-Oct-11 3-Jan-12 3-Apr-12 3-Jul-12 %

Corporate bonds spread over 10- year MGS

AAA AA2 A2 BBB2 BB2

Source: BPAM

5 10 15 20 25 30 1m 3m 6m 1y 2y 3y 5y 7y 10y 15y 20y %

Malaysian Yield Curves

MGS AAA AA2 A2 BBB2 BB2 B2

17

slide-18
SLIDE 18
  • RAM Ratings

18

slide-19
SLIDE 19

RAM Ratings

  • RAM Rating Services Berhad (previously known as Rating Agency Malaysia Berhad)

was incorporated in 1990 as the first credit rating agency in Malaysia

  • Set-up as a Central Bank initiative to develop the corporate bond market
  • Regulated by the Securities Commission

CIMB Bank Berhad 14.425% RHB Bank Berhad 8.850% Malayan Banking Berhad 6.900% Public Bank Berhad 5.325% Standard & Poor’s 4.900% United Overseas Bank (Malaysia) Berhad 4.200% Hong Leong Bank 4.000% Fitch Ratings 4.900% Affin Bank Berhad 3.600% Fitch Ratings 4.900%

Our shareholders

19

slide-20
SLIDE 20

Key milestones

1991 Rated first corporate bond 1994 Rated first Islamic Sukuk 2000 First corporate default study report released 2004 Inaugural RAM League Awards 2006 Voted World’s 2nd Best Islamic CRA 2008 Launched nation’s first Sukuk Handbook & Corporate Reorganisation 1993 Rated first financial institution 1997 Rated first insurance company 2003 Launched first Islamic Finance Bulletin 2005 Rated first partnership- based Sukuk 2007 RAM Ratings formed 2009 First state rating assigned 2010 Marks 20th Anniversary & first Corporate Social Responsibility event 2011 Awarded: 1) Most Outstanding Rating Agency for Sukuk by KLIFF 2) Best Research in Islamic Finance from Dubai- based CPI Financial 3) Best Islamic Rating Agency 2011 by Red Money Group, Kuala Lumpur 20

slide-21
SLIDE 21

Consumer & Industrial Ratings Real Estate & Construction Ratings Infrastructure & Utilities Ratings Financial Institutions Ratings Structured Finance Ratings Islamic Ratings Public Finance Ratings Data & Analytics

Our teams and footprint

slide-22
SLIDE 22

Our coverage by issuers

UAE 33%

Kingdom of Saudi Arabia 13%

Kuwait 6% South Korea 27% Japan 7% Hong Kong 7% Singapore 7% Bank of Tokyo-Mitsubishi UFJ Limited

  • Financial Institution Rating

Dar Al Arkan Real Estate Development Company

  • Corporate Credit Rating

DBS Bank Limited

  • Financial Institution Rating

Gulf Investment Corporation

  • Financial Institution Rating
  • MYR600 million Senior Unsecured Bonds
  • MYR400 million Senior Unsecured Bonds
  • MYR3.5 billion Sukuk Wakalah bi Istithmar

Programme Hana Bank – MYR1.0 billion Nominal Value Multi-Currency MTN Programme Hyundai Capital Services, Inc – MYR2.0 billion MTN Programme Industrial Bank of Korea – MYR3.0 billion Conventional and / or Islamic MTN Programme National Agricultural Cooperative Federation – MYR3.3 billion Senior Notes MTN Programme Abu Dhabi Commercial Bank PJSC

  • Financial Institution Rating

National Bank of Abu Dhabi PJSC

  • Financial Institution Rating
  • MYR3.0 billion Senior Unsecured Islamic /

Conventional MTN Programme ADCB Finance (Cayman) Ltd – MYR3.5 billion Senior Unsecured MTN Emirates NBD PJSC – Proposed MYR3.8 billion Senior Unsecured Conventional or Islamic MTN Programme Abu Dhabi National Energy Company PJSC

  • MYR3.5 billion Sukuk Murabahah

Programme Al Bayan Holding Company

  • Corporate Credit Rating

Noble Group Limited - MYR3.0 billion Multi-Currency Sukuk Murabahah Programme

Foreign Issuers Rated

slide-23
SLIDE 23

Our coverage by bond value

As at end-March 2012

Diversified Holdings 6.6% Financial Services 38.8% Mining & Petroleum 1.8% Plantation & Agriculture 0.4% Consumer Products 0.9% Industrial Products 1.5% Construction & Engineering 1.4% Property & Real Estate 3.9% Transportation 2.1% Trading & Services 2.3% Infrastructure & Utilities 35.9% Asset- Backed Securities 4.3% Public Finance 0.2%

RAM-Rated Bond Value : RM746 billion

23

slide-24
SLIDE 24

International Recognition

Top Domestic Rating Agency in the Asia Pacific Region by Asian Development Bank The Most Influential Rating Agency in the Region

The Most Outstanding Rating Agency for Sukuk 2011

Best Research in Islamic Finance 2011 by Dubai- based CPI Financial

24

slide-25
SLIDE 25

RAM Holdings Berhad Level 20, The Gardens South Tower Mid Valley City, Lingkaran Syed Putra 59200 Kuala Lumpur Tel: (603) 7628 1000 www.ram.com.my

Thank You

slide-26
SLIDE 26

Types of ratings

Issuer credit rating

  • Capacity and willingness to

meet financial commitments

  • Purely a default risk indicator

Issue rating

  • Creditworthiness of a specific

financial obligation

  • Considers specific provisions
  • f the instrument and the

regulatory preferences of the debt

Corporate Credit Rating Financial Institutions Rating Claims Paying Ability Financial Enhancer Rating Issue / programme rating Debt-based rating Partnership-based rating Specialised groups:

Corporates Financial Institutions Project Finance Structured Finance Sukuk Ratings Public Finance 26

slide-27
SLIDE 27

Rating definitions

LONG-TERM RATING SHORT-TERM RATING AAA AA

1

AA

2

AA

3

A

1

A

2

A

3

BBB

1

BBB

2

BBB

3

P3 BB

1

BB

2

BB

3

B

1

B

2

B

3

C

1

C

2

C

3

D D P1 P2 NP

Speculative Grade Speculative Grade Investment Grade Investment Grade

Superior capacity to meet its financial

  • bligations

Strong capacity to meet its financial

  • bligations

Adequate capacity to meet its financial

  • bligations

Moderate capacity to meet its financial

  • bligations

Weak capacity to meet its financial

  • bligations

Very weak capacity to meet its financial obligations High likelihood of default on its financial obligations Currently in default on either all or a substantial portion of its financial

  • bligations

AAA AA A BBB BB B C D

Definitions

27

slide-28
SLIDE 28

Malaysian Experience

The Malaysian Bond Market

Denominated in Ringgit Malaysia (MYR) 2 domestic rating agencies (RAM Ratings, MARC) Investor base mainly institutional investors World’s largest Islamic/Sukuk market

28

slide-29
SLIDE 29

Sukuk overtook Conventional bonds since 2006

Outstanding LCY Corporate Bonds, 2001 - 2011

29

slide-30
SLIDE 30

Our values

Credibility

Independence Integrity Transparency Credibility

Providing Direction

Opinions That Shape The Market

30