Dual ratings proposal

MALAYSIA'S rating agencies said dual ratings were some of the measures that should be adopted to further stimulate the local bond market. 

A common theme that both Malaysian Rating Agency Corp Bhd (MARC) and RAM Rating Services Bhd highlighted to StarBiz was the subject of dual ratings. 

At present, issuers only need to get their bonds rated by either MARC or RAM. Dual ratings would mean issuers get their bonds rated by both rating agencies. 

MARC chief executive officer Mohd Razlan Mohamed said in mature markets like Europe and the United States, investors preferred dual or triple ratings.  

“The practice of dual ratings would benefit investors, as they can obtain different opinions on a rated entity’s credit quality, allowing them to make more informed decisions. 

“For us to move in line with mature markets, issuers and financial institutions should embark on dual ratings voluntarily,” he said, suggesting that large issuance above RM1bil be dual rated. 

RAM Rating managing director and chief executive officer Wong Fook-Wah concurred saying that: “Ratings play a vital role in debt pricing. Dual ratings will help minimise rating shopping and allow the market to compare the accuracy of ratings.”  

The Securities Commission (SC) said it continued to take necessary measures to ensure the robustness of the rating process as reflected by the recent issuance of the “Practice Note on Recognition of Credit Rating Agencies by the Securities Commission for the Purpose of Rating Bond Issues”. 

“The matter of dual rating for bond issuances is not a policy that is being formally considered at the moment,” it said in an e-mail reply to StarBiz

It pointed out that Malaysia has made progress in developing the domestic bond market into one of the largest market in Asia (excluding Japan).  

The corporate bond market in the country, it said was one of the most well-established markets in the region, with the necessary depth and breadth to meet the funding needs of corporate issuers.  

“The corporate bond market provided more than 58% of total debt financing for the corporate sector in 2006.  

“Most of the bond issues are for long-term financing, with the longest tenor reaching out to 33 years,” it said. 

The SC however highlighted that there was need to further develop the size of the domestic bond market rapidly and to diversify the issuer base to promote greater liquidity from local and foreign investors into the corporate bond market. 

“Towards this end, the SC is implementing several key initiatives to develop the bond market in Malaysia, including establishing a more facilitative approval process for issuance of bonds and sukuk by government-owned entities and multinational corporations from both within and outside of Malaysia,” it said, adding that the government has also established a facilitative tax framework to promote the growth of the bond market. 

Apart from dual ratings, Razlan also suggested that trustees be empowered to have a more proactive role in bond issuances. 

“Their present role is relatively passive and limited by heavy reliance on client representations and client-generated information,” he said. 

0He also opined that interim reporting of results be made mandatory for private limited companies that are issuers.  

“Stricter reporting requirements will enable investors and rating agencies to form more accurate opinions as to any positive or negative developments in credit quality,” he said, adding that the flow of information between trustees, facility agents and rating agencies could be improved further to facilitate timely and appropriate response to negative developments in relation to issuers. 

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