Second Finance Minister, Datuk Johari Abdul Ghani
KUALA LUMPUR: Malaysia will remove restrictions on unrated securities from Monday as it seeks to deepen the ringgit debt market even after investors in neighboring Singapore got burned.
Southeast Asia’s third-biggest economy is proceeding with the move because it recognizes that sophisticated investors such as pension funds and insurance companies are able to protect their own interests, the Securities Commission said in response to questions from Bloomberg News. There are also securities laws that provide a broad spectrum of actions which the regulator and investors can take against false or misleading disclosures, it said.
The removal of mandatory bond ratings was announced by Prime Minister Datuk Seri Najib Tun Razak in June 2014 as part of measures to liberalize the financial sector and broaden the corporate bond market. Malaysia has the largest debt market in Southeast Asia as well as the world’s biggest for Islamic securities.
The latest measures contrast with Singapore, which is encouraging issuers to have their debt assessed to improve transparency after five companies in the city-state, including oil services firms Swiber Holdings Ltd. and Swissco Holdings Ltd., defaulted on nearly S$1 billion ($701 million) of bonds in 2016.
Pricing Risk
“The move will be good because it allows the market to differentiate and price risk premium,” said James Lau, a Kuala Lumpur-based investment director at Pheim Asset Management Sdn.
Malaysia’s Second Finance Minister, Datuk Johari Abdul Ghani, is of the view that the local debt market is mature enough to allow for trading of bonds that aren’t assessed as long as proper governance is in place.
This new policy reflects a commitment to “regulatory proportionality” and is also part of the shift to broaden the bond market, drive down issuance costs and increase efficiency, the SC said.
Malaysia has 1.18 trillion ringgit ($264 billion) of outstanding Islamic and conventional bond and monetary notes, according to information published on the central bank’s website. The amount of unrated securities in the country isn’t significant relative to the overall market, the Securities Commission said, without giving a number.
Prior to this, companies could only issue unrated bonds that aren’t transferable or traded. The SC relaxed the rule in 2015, allowing only unrated debt that had been outstanding for at least two years and sold to sophisticated investors to change hands.
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