Triplc to raise RM240m from bond sale

Triplc Bhd, a Malaysian developer and maker of timber products, plans to raise RM240 million through a bond sale backed by state guarantee agency Danajamin Nasional Bhd, Malaysian Rating Corp said in a report today.

The issuance is rated AAA with a “stable” outlook given the government guarantee, Marc said. -- Bloomberg

Read more: Triplc to raise RM240m from bond sale http://www.btimes.com.my/Current_News/BTIMES/articles/20111010122042/Article/index_html#ixzz1aLkbN3qu

Good Time for Corporates to Issue Bonds - The StarBiz, Page 1 - 04 April 2011

This was the article that came out in today's StarBiz on page 1. The interview took place last Friday.
Good Time for Corporates to Issue Bonds - The StarBiz, Page 1 - 04 April 2011

Bond Index Monthly Report for December 2010 by Bond Pricing Agency Malaysia

Bond Index Monthly Report - Extended Dec 2010

Bond Index Report - November 2010 - BPA Malaysia

This is the monthly Malaysian bond market performance report published by Bond Pricing Agency Malaysia.

The level of volatility that was seen in October did not continue into November. Throughout November, the reduced volatility enabled returns of all tenure buckets under review to be in positive territory.  The sukuk universe continues to out perform the conventional bond space although not at the levels as reported last month. This difference in more obvious for the corporate segment compared to the government segment.




Bond Index Report - November 2010 - BPA Malaysia

Process flow of issuing a bond - what to look out for and key risk areas

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Below is a simple presentation of what to do and what to focus on at the various stages of the bond issuance process. Full details on the various stages can be found in previous postings such as:

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

The Flow of a Bond Issuance - Part 2 - Primary Level

The Flow of a Bond Issuance - Part 2 - Primary Level (continuation)

The Flow of a Bond Issuance - Part 2 - Primary Level - Users of FAST

The Flow of a Bond Issuance - Part 2 - Primary Level - Primary Trading Process and Procedures

The Flow of a Bond Issuance - Part 3 - Secondary Level - Trading process and market conventions

 

Process Flow of the Bond Issuance Process

The Flow of a Bond Issuance - Part 2 - Primary Level - Primary Trading Process and Procedures

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Once all the documentation have been perfected, the bonds will be ready to be sold for the first time. This is similar to the IPO stage in the equities market.

However, there are three methods to which the bonds can be sold. Depending on the needs of the issuer, these three methods have their own peculiar advantage and disadvantages. As shown in the diagram below, the three options are tender, bought deal and book building.

Tender Method (Option 1)

•There are 3 ways through which a new bond or sukuk issue can be distributed to the market. The first is the tender method, which is usually used for Government securities. Highly rated corporates sometimes utilise this option. The tendering process is open to all Principal Dealers. In the case of GIIs, all Islamic banks are also allowed to participate in the auction. Principal Dealers are obliged to tender competitively for a minimum of 10% of the issue amount. Bids submitted during the auction may be based on either price or yield. The tender announcement detailing the size and exact date of the issue is announced at least 5 business days before the issue date, via FAST. The “when issued” (“WI”) trading will commence on the tender-announcement date, after stock creation through FAST. WI trading begins upon formal announcement of an issue. WI trading is done on a yield basis, regardless of whether it is a new or reopened issue; it will continue until the tender results are announced. The value date for settlement of WI trades must be on or after this date; the standard value date is 2 business days (value spot). Trading on a WI basis is aimed at facilitating the price-discovery process. 

 

•Non-Principal Dealers or other inter-bank institutions can also submit their bids via a Principal Dealer, with a maximum allotment limit of 30% per bidder. If bids are successful, RENTAS will allot the securities to the bidder by lodging these securities with their appointed Authorised Depository Institutions (“ADIs”). Settlement will then take place automatically in RENTAS, on a Delivery-versus-Payment (“DvP”) basis.

 

 

Bought-Deal Basis (Option 2)

 

• This is the most typical issuance process for corporate bonds or sukuks. This method overcomes some of the major risks associated with the tender method, one of which is the risk of under-subscription. Demand for sukuks is a function of credit appetite as well as the economic environment at the point of issuance. As such, the likelihood of under-subscription is there. Although such risk can be mitigated by having an underwriter  (or underwriters), the upfront costs and additional administrative processes (e.g. documentation), not to mention having another external party involved in the issuance process, may not appeal to some corporate investors. 

 

• The tendered yields could  also be substantially above what had been originally expected. Due to the time required from structuring up to the point of offering the sukuks during the tender period, the risk-reward appetite of potential investors may have moved against the issuer. In this case, the original cost projections for the sukuk may become inadequate. Similar to the under-subscription situation discussed earlier, an underwriter (or underwriters) may be employed to provide a floor price (i.e. a ceiling yield) for the paper. 

 

Book-Building Basis (Option 3)
 

•This is somewhat similar to the tender method, except  that it is done on an informal basis. Via private arrangements with a number of identified potential investors, a list of final investors will be built based on the individual one-to-one negotiations. After a given period for tender, the Facility Agent or Lead Arranger will announce the allocation based on the bidding results.

The Flow of a Bond Issuance - Part 2 - Primary Level (continuation)

Another important infrastructure that I forgot to add in the last posting is the BIDS system. As the Malaysian bond market is an Over-the-Counter (OTC) market, the authorities decided to create a reporting system for the market.

Bond Information and Dissemination System (“BIDS”)


•This is the system under BNM that captures all trading data on the Malaysian bond market. The BIDS system was established in 1997, to enhance the transparency of secondary-market information. It is a computerised and centralised database on ringgit-denominated debt securities, providing information on the terms of issues, prices of trades, details of trades done, including transactions on repo activities, and relevant news on the various debt and sukuk papers issued by both the Government and the corporate sector. 

• Under the Rules on BIDS (effective October 2001), all the members of FAST and RENTAS are required to provide all the relevant trade information after a transaction has been executed, whether the parties are from the buy or sell side. They are obliged to report via BIDS the details of the trade done, within 10 minutes of execution. Rating agencies, on the other hand, are required to update the issuers' ratings. Selected information from BIDS is shared on an almost real-time basis with major newswire services like Reuters and Bloomberg. Members of BIDS must be guided by the principle of integrity, to ensure proper input of information as well as accuracy and timeliness. The Rules on BIDS are very explicit, in that responsibility lies solely with the members. BNM is not liable for any inaccuracies. 

•Since March 2008, the responsibility has been handed over to Bursa Malaysia.

The Flow of a Bond Issuance - Part 2 - Primary Level

With the bond or sukuk issue having obtained the necessary approvals from the relevant authorities, the stage is set for the papers to be issued. The key infrastructure at this stage is the FAST and RENTAS systems, both of which are under the purview of BNM.

Fully Automated System for Tendering (“FAST”)  

•FAST was launched by BNM in September 1996, to automate the tendering procedure for MGS and other BNM papers, which are issued through the Principal Dealers network. By July 1997, the FAST system was able to handle private debt securities (“PDS”). Today, FAST still serves as an entry point for primary activities vis-à-vis securities issuance, money-market tenders and repo tenders. 

• FAST is constantly evolving along with the development of technology and the needs of market participants, following international best practices on market transparency. The system’s centralised news and information are accessible by the general public, without requiring them to become members of FAST. This enables market players to improve their processes when handling instruments and also in the issuance processes, regardless of the mode of offer, while enhancing the overall transparency of Malaysia’s financial system.

• The Rules on FAST had been issued pursuant to Section 126 of the Banking and Financial Institutions Act 1989, to provide a set of procedures and practices that govern the issuance and tendering of all instruments captured under this system. There is now a one-stop aggregator that captures all issuance of instruments, regardless of the mode of issue. This facilitates the facility agent or lead arranger’s management of the debt issue throughout its tenure. Under the FAST Rules, each facility can only be maintained by one facility agent or lead arranger. For tendered instruments, FAST provides a standardised tendering process in terms of bid submission, tender processing and announcement of results. For non-tendered instruments, FAST enables the creation of a facility and stock that can be uniquely identified by certain codes of reference.

Real-Time Electronic Transfer of Funds and Securities (“RENTAS”)


•Under the RENTAS System, scripless securities had been created to facilitate the change from physical certificates to a fully scripless setting. The RENTAS Rules, published by BNM, are applicable to the issuance, allotment, reopening, payment, redemption and settlement of scripless instruments traded under the RENTAS system.

• All sukuks issued through RENTAS must comply with the terms and conditions set out in the Information Memorandum, Depository and Paying Agency Agreement (“DPAA”), Trust Deed and other relevant legal documents binding the issues. Each issue will be represented by a Global Certificate, which must be lodged with the Central Depository for safe custody. The Central Depository will keep the Global Certificate until maturity, and must not make any amendment or cancellation to the Global Certificate. The Facility Agent or Lead Arranger must submit the Global Certificate to the Central Depository at least 1 business day before the issue date. However, the Facility Agent or Lead Arranger is allowed to amend the Global Certificate after the issue date, but only under specific circumstances. In this regard, the amended Global Certificate must be submitted to the Central Depository – at the latest - 2 business days after the issue date.