Improved growth for private debt securities market


By YVONNE CHONG

RATING Agency Malaysia Bhd (RAM) expects the local private debt securities (PDS) market to grow by 30% this year to RM34bil from RM25bil of last year. 

Speaking to reporters after the company’s AGM at Kuala Lumpur yesterday, RAM executive deputy chairman Datuk C. Rajandram said there had been a shift from looking to the banks for the raising of corporate funds to that of the bond market. 

“For the past few years, the bond market has been continuously encroaching into the market share of the banks. About 20% to 25% of corporate debts are funded by bonds and the percentage is rising. Bank lending will correspondingly come down,” Rajandram said. 

He added that it was the trend for the bond market to grow, citing that in mature markets such as the United States, bonds accounted for about 40% of the total corporate funds raised. 

Rajandram said that due to the current regional and world economic situation, the amount of funds raised in the market may lessen this year. 

Nonetheless the bond market will continue to grow as issuers find it a more cost-effective alternative than bank loans. It also has an added attraction of more innovative types of transactions as the market evolved further. 

Among the different types of securities, Islamic PDS has fast gained popularity. Last year it overtook conventional PDS, and accounted for 52% of total securities raised, according to RAM executive director Suresh Menon. 

Total value of Islamic PDS rated by RAM leapt to RM17.35bil, more than triple the RM5.74bil recorded in 2001. 

Islamic debt securities accounted for 62.1% of the total issued value, compared to 27.7% in 2001. Besides the two large AAA-rated issues from Projek Lebuhraya Utara-Selatan Bhd (PLUS), the surge in Islamic PDS last year was also a result of its popularity among toll road projects. 

The asset-backed securities (ABS) market, which made its debut in 2001, has, however, not taken off as rapidly as desired. There were only three ABS transactions in 2001 and two last year. 

RAM said the challenges confronting this segment included lack of investor education and awareness, as well as accounting, legal and regulatory issues. 

RAM achieved a revenue of RM19.97mil and pre-tax profit of RM4.1mil for the financial year ended Dec 31, 2002. It completed 77 new ratings last year, with a total proposed gross issuance value of RM27.96bil. 

As at the end of last year, RAM has rated 692 PDS issues worth RM168.2bil. 

Suresh said RAM expected to handle 80 new ratings this year. 

“Moving forward, we remain commitment towards assisting the government in the development of a viable, efficient and liquid ringgit bond market to meet the nation’s long-term financial needs. We will continue to be dedicated to our pivotal role in nurturing investors’ confidence,” Rajandram said. 

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