The Flow of a Bond Issuance - Part 1 - Pre-issuance stage

Now that we know about the key infrastructure in the Malaysian bond market, let us go straight to the process of issuance. As highlighted in the previous posting, there are three stages to a bond issuance. Today, we will cover the first part, the pre-issuance stage.

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•This is the most taxing process. The success of any bond or sukuk issue depends on the ability of the issuer (through counselling by the various advisers) to structure a deal that fulfils investors’ risk appetite at that particular point. It is therefore critical that the issuer has an intimate understanding of the risk appetite of their targeted investors. Misreading the market could cost the issuer dearly in terms of expenses as well as under-subscription of the bond or sukuk issue. The latter may, however, be mitigated by having underwriters.

• The key success factor in this process is the ability of the various parties to play their parts in maximising the issuer’s utility. To ensure that this goal can be easily achieved, a good project-management team is an important ingredient. The project-management team, typically the financial adviser, must be savvy vis-à-vis the necessary steps that can minimise time to market and also the issuer’s overall costs.

• The entire structure will then go through final certification by the relevant regulators. The SC is the main regulator when it comes to bond and sukuk issuance. Approval from the other regulators, such as BNM and Suruhanjaya Syarikat Malaysia (or SSM), is also needed - depending on the issuer as well as the type of instrument being offered for sale.

•Bond and sukuk markets can only function efficiently if there is transparency. The information presented to regulators and potential investors must be as comprehensive as possible. Should there be queries, the regulators have the right to request for clarification; this process could unnecessarily delay the entire issuance process. Moreover, it also entails some form of financial “penalty” in the form of administrative fees each time the SC sends out queries and reviews the answers from the prospective issuers.

 

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