SC's new centralised bonds and sukuk platform will spur KWAP to invest more in corporate bonds in 2018

The Edge Markets, 6 November 2017

KUALA LUMPUR (Nov 6): Malaysia’s second largest pension fund Kumpulan Wang Persaraan (Diperbadankan) (KWAP) expects to invest more into the corporate bond and sukuk market in 2018 following the setting up of the Bond and Sukuk Information Exchange (BIX) platform.

KWAP chief executive officer Datuk Wan Kamaruzaman Ahmad said the diversification to include corporate bonds would fall under its RM2 billion trading book portfolio.

“Our trading book for bonds and sukuk is RM2 billion, and the criterion is that the bonds must be liquid. So the choice is often Malaysian Government Securities (MGS) and Government Investment Issues (GII).

“But from next year we will include corporate bonds particularly with BIX because it gives us ease of doing business as all the information is in one place,” he said.

Wan Kamaruzaman was speaking on the centralised bond and sukuk platform launched by the Securities Commission Malaysia (SC) today, at the Synergistic Collaborations by SC (SCxSC) 2017 digital finance conference 2017.

He said previously the information for bond and sukuk was "all over the place".

“If you want information on trust deed, you need to go to SC, for primary market especially on currencies you go to Bank Negara Malaysia, for last traded price to Bursa Malaysia and credit ratings to credit ratings agency websites,” he said.

Parallel to the platform, SC would liberalise the rules to enable greater retail access in the corporate bond and sukuk market that has reached RM1.3 trillion in size, making it the third largest market in Asia and largest sukuk market in the world, by the first quarter of next year.

It includes the review of the primary market issuance processes and disclosure requirements and expanding the range of corporate bonds and sukuks offered to retail investors.

The secondary market would also be reviewed to enable the introduction of a ‘seasoning framework’ to facilitate retail access to existing corporate bonds and sukuk that are currently traded in the wholesale market.

SC chairman Tan Sri Ranjit Ajit Singh said the platform is the first of its kind to consolidate bond and sukuk price and credit information combined with an advanced search function and other useful tools to help investors make effective investment decisions.

BIX chairman Datuk Lee Kok Kwan, who is also CIMB Group director, said the liberalised rules for retail investor participation was timely because savings rate in Malaysia is high, where demand far outstrips supply.

“Typically, the bond market is inaccessible to retail investors anywhere in the world and for a country like Malaysia where savings rate is high, it is imperative that the asset classes are widened beyond property and equity,” he added.

Lee noted that the fixed income market is the largest asset class in the world at US$110 trillion compared to the equity market at US$80 trillion.

“In Malaysia, there has to education and awareness to retail investors. To give an example — take the Danainfra Nasional Bhd bond issued few years ago to build the mass rapid transit. It is 30 years with a 5.25% yield. Look at the absolute returns.

“The retail investor buys into the bond, and assuming the coupon can be reinvested at 8%, the total return could be 261% plus 100% of the principle that is guaranteed by the issuer, therefore the government.

“So if the investor puts in RM100,000 today, in 30 years, the person can get RM381,000 back. There are not many asset classes where the principle is 100% guaranteed by issuers at perpetuity.

“That is why fixed income investment is very good for medium to long term financial planning due to good investment yield,” he said.

According to SC executive director Kamarudin Hashim, a two-part review — primary market issuance, and seasoning framework, would be made to liberalise the rules to encourage retail investment.

The primary market issuance requires further refinement in terms of the issuance process, and disclosure requirement relating to prospectus for the bond market would be slightly less onerous.

“It would take into account the feature of the market itself to show bonds are fairly safe and to ensure sufficient economies of scale for issuers via the primary market,” he said.

(Web source: http://www.theedgemarkets.com/article/scs-new-centralised-bonds-and-sukuk-platform-will-spur-kwap-invest-more-corporate-bonds-2018)