Reaching out to non-traditional bond issuers

  • Business
  • Monday, 21 Jun 2010

PETALING JAYA: Danajamin Nasional Bhd, the country’s first financial guarantee insurer, is reaching out to more non-traditional bond issuers such as smaller companies that do not usually have access to the bond market.

An example is its guarantee for the RM200mil private debt securities programme of Syarikat Kapasi Sdn Bhd, a unit of Asian Pac Holding Bhd.

Most of these companies would not think of going to the bond market or would not be able to get good ratings for their bonds.

Danajamin chief executive officer Ahmad Zulqarnain Onn said that by incorporating corporate banking discipline and terms in the structure of the bonds that it guaranteed, Danajamin was able to help companies tap the bond market and at the same time, protect its interest.

“From the onset, issuers are required to give a clear purpose of fund utilisation and clear source of bond repayment. We want to be sure that the funds raised will be used as intended and the bonds will be repaid. There must also be sufficient security in place,” he told StarBiz.

This guarantee structure commensurate with the risk that Danajamin is taking on as a guarantor for the entire issuance which could stretch to 20 years.

Zulqarnain said if a bond was properly structured and the risk well-managed, “then the bond can be guaranteed.”

He added that Danajamin’s efforts would encourage more corporate bond issuances and contribute towards the development of the domestic bond market. As the economy continues to expand, a well-functioning bond market is important in providing corporations with an alternative source of funding, specifically long-term funds, to complement bank borrowings.

As at June 15, Danajamin had approved RM2.9bil guarantees for various sectors including property, oil and gas, infrastructure and plantation.

Set up last year to ensure corporations will continue to have access to funding to finance their businesses, Danajamin provides financial guarantee, a credit enhancement, to bond/sukuk issuances to help companies raise long-term financing from the bond market at reasonable rates.

By providing financial guarantee to bond issuances, Danajamin enables a wider spectrum of companies to tap the bond market for fixed rate funding of longer maturities.

He said: “Our unique capability is that we are able to provide long-term fixed rate financing for all sorts of sectors. This opens up long-term financing for all companies, be it large corporations, mid-market companies and also some smaller privately-held companies.”

According to Zulqarnain, bonds that are issued with Danajamin’s guarantee will automatically be upgraded to AAA rating, which gives investors an assurance of the quality of the paper. “AAA papers are highly sought after in the market now and investors will welcome the issuance of high quality papers to invest in,” he said.

At the same time, with Danajamin’s guarantee, the bonds will be issued at a more competitive rate (due to the AAA rating), as compared to being issued at the company’s stand-alone rating.

The first Danajamin guaranteed bond - the Syarikat Kapasi bond - has received Securities Commission approval and is targeted to be issued within the next two to three weeks to finance Syarikat Kapasi’s KK Times Square phase two project in Kota Kinabalu. The project comprises a shopping mall, service apartments and shoplots. Danajamin is guaranteeing the RM200mil private debt securities programme of Syarikat Kapasi, which is a unit of Asian Pac Holding Bhd.

Zulqarnain said traditionally, developers do not usually resort to bonds issuance for project financing and even when bonds are raised, it is usually at corporate or parent level and funds are then channelled to the projects.

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