CHAPTER 5: MALAYSIAN BOND MARKET

NEEDS FOR A STRONG DOMESTIC BOND MARKET

Investors demand large amount of finance for manufacturing activities, infrastructure
improvements and provision of services
Change in economic structure from labour intensive to capital intensive
Long-term institutional investors need funds for portfolio diversification and liability
management purposes

WHO ARE THE ISSUERS?

1. Government of Malaysia
Government issues marketable bonds to finance its working capital and development
expenditure
Malaysian Treasury Bills (MTB) is one of the common short-term securities the
government issues for their working capital.
For development expenditure, the government issues interest-bearing long-term bonds
in the domestic capital market
2. Bank Negara Malaysia
Objectives of Bank Negara Malaysia:
To issue currency and keep reserves safeguarding the value of currency
To act as a banker and financial advisor to governments
To promote monetary stability and a sound financial structure
To promote reliable, efficient and smooth operation of national
payments and settlement systems
To ensure national payment and settlement systems policy is directed to
the advantages of Malaysia
To influence the credit situation to advantage of country
The central bank issues bonds to manage liquidity in both the conventional and Islamic
financial markets
Bank Negara provides temporary advances to the government to cover any deficit in the
budget revenue
Examples of securities issued by Bank Negara are:
Bank Negara Monetary Notes
Sukuk BNM Issues
Merdeka Savings Bonds
3. Quasi-government Institutions
Khazanah Nasional Berhad
It is the investment holding arm of the Government of Malaysia.
Khazanahs main long-term objective is to promote economic growth and
make strategic investments on behalf of the government which would
contribute towards nation building

 Pengurusan Danaharta Nasional Berhad

Public company wholly owned by the Malaysian government.
Act as the national asset management company
Re-energize the Malaysian financial sector by buying non-performing loans
(NPLs) from financial institutions and maximize their recovery value
Danamodal
Special purpose company incorporated by Bank Negara Malaysia
Recapitalize and strengthen Malaysias banking institutions
Promote stability in the local banking industry
4. Cagamas Berhad
The National Mortgage Corporation which is a leading securitization house
Promote development of the private debt securities market
Promotes secondary mortgage market in Malaysia
Issues debt securities to finance the purchase of government servants housing loans
Examples of Cagamas issues are:
Cagamas Fixed Rate Bonds
Cagamas Floating Rate Bonds
Cagamas Notes
Sanadat Mudharabah Cagamas
5. Multilateral Development Banks
MDBs grant financing for technical assistance, advisory services or project preparation
Provide financial support and professional advice to the developing countries in terms of
economic and social development activities Interest rate on CDs is fixed over their stated
maturity.
Sources to raise funds:
MDBs borrow development funds from international capital markets and re-lend
to the governments of developing countries in the form of long-term loans.
The MDBs use money donated by governments of other countries to finance
very long-term loans. The borrowing countries pay interest well below market
interest rates.
BOND INVESTORS
1. Employees Provident
Fund
2. Pension Funds

3. Unit Trusts

4. Insurance Companies
5. Asset Management
Companies

A national social security organization operating through a

provident fund scheme in Malaysia
A scheme designed with conservative investment
strategies
Manages contributors funds and assets to obtain good
returns for members
Diversify risk through investment portfolio
Managed by professional fund managers
Easy access to liquidity
Convenience and affordable investment amounts
Issue unit-linked bonds which are collective investment
funds similar to unit trusts
A central disposition agency which takes loans from all
financial institutions
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6. Discount Houses

7. Commercial Banks

8. Islamic Banks
9. Investment Banks

10. Securities Companies

11. Finance Companies

12. Merchant Banks

Includes the business of receiving and utilizing deposits

and other funds for investment purposes
Financial intermediaries which transfer deposits by
making loans
Pool funds from numerous sources and lend these funds
to large number of borrowers
Banks which are governed by Shariah law
Provide Shariah-compliant products and services
Regarded as excellent proxies for capital market
Provide wide range of service areas: (i) advisory, (ii) fundraising and (iii) equities trading
Provide online stock broking services, trading, corporate
finance and market economic analysis
Offer investment research and advisory services
Provide additional services: (i) institutional dealings, (ii)
retail support services and (iii) futures dealing
Provide credit to individuals and businesses
Buy the time-sales contracts of merchants for the
purchase of consumer goods and services
Financial intermediaries which involve in transferring
capital to those interested in borrowing funds
Activities of merchant banks include: (i) mergers and
acquisitions and (ii) restructuring and reorganization

DEBT SECURITIES PRODUCTS

Fixed rate bond.
Hybrid bonds.
Floating rate notes.
Variable rate notes.
Medium-term note programmes.
Commercial mortgage-backed securities.
Asset-backed securities.
Securitized products.
TYPES OF GOVERNMENT SECURITIES
Malaysian Treasury Bills
Malaysian Islamic Treasury Bills
Malaysian Government Securities
Government Investment Issues
CORPORATE BONDS
Fixed coupon bearing bonds:
1. Straight bonds
2. Bonds with detachable warrants
3. Floaters
4. Asset-backed securities
5. Convertible bonds
6. Callable bonds
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TYPES OF ISLAMIC BONDS

1. Debt-based bonds
2. Asset-based bonds
3. Equity-based bonds
COMPARISON BETWEEN ISLAMIC AND CONVENTIONAL BONDS
ITEMS
Issuance process
Structure types
Issuers
Investors

ISLAMIC BONDS
Must be approved by Shariah scholars
and Securities Commission
Asset, equity and debt based
Government, semi-government and
private sector
Both conventional and Islamic investors

CONVENTIONAL BONDS
Must be approved by Securities
Commission only
Debt based only
Government, semi-government and
private sector
Only conventional investors

BANK NEGARA MALAYSIA SUKUK IJARAH

Sukuk which is based on Ijarah or sale-and-lease-back concept
MERDEKA SAVINGS BONDS
Shariah-compliant and scripless bonds which are offered to Malaysian citizens aged 56 years and
above and individuals who have retires on medical grounds
MALAYSIAN ISLAMIC TREASURY BILLS
A short term securities issued on a weekly basis with an original maturity of one year
BANK NEGARA MONETARY NOTES
Islamic securities issued for the purpose of managing liquidity in Islamic financial market
BOND PRICING AGENCIES
1. Rating Agency Malaysia Berhad
2. Malaysian Rating Corporation Berhad
3. Standard & Poors
4. Moodys