Special Address by

YBhg Dato’ Zarinah Anwar,
Chairman, Securities Commission Malaysia


RAM League Awards 2008
Shangri-la Hotel, Kuala Lumpur
14 March 2008

YBhg Tan Sri Dato’ Seri Siti Norma binti Yaakob, Chairman, RAM Holdings Bhd

YBhg Datuk C. Rajandram, Executive Deputy Chairman, RAM Holdings Bhd

Distinguished guests

Ladies and gentlemen.

Good Evening.

1. I am delighted to be here this evening and would like to thank RAM for inviting me to join you to acknowledge the contribution of those who have played a leading role in the development and growth of our bond market.
2. Our intermediaries in the Malaysian bond market have shown strong stewardship and contributed much to the development of the market and it is fitting therefore that this RAM League Awards 2008 should pay tribute to such contribution. I would like to commend RAM for honouring the achievers.

The Malaysian Bond Market

3. Our bond market has evolved rapidly over the last decade. Underpinned by strong and consistent growth of the Malaysian economy over the past 10 years, the market has registered remarkable growth, expanding by more than 3½ times its size in 1997. By the end of 2007, the market had grown to RM475 billion from RM132 billion that it was 10 years before. In 2007, we also saw primary corporate bond market activity at its highest level with a total of RM69 billion of corporate bonds issued, and a total of RM159 billion of corporate bonds approved by the SC.
4. Equally encouraging is the fact that this has been complemented by strong growth in our sukuk market. Since the first issuance of the sukuk by a locally incorporated MNC back in 1990, the sukuk market has grown significantly.

Growth on the Back of Key Strengths

5. Clearly our bond market has now become a major source of financing for issuers and is a key segment of the overall capital market. Recent figures by the Asian Development Bank show that Malaysia is now the second largest bond market relative to GDP in Asia after Japan, and fourth in Asia in absolute terms behind Japan, China and Korea.
6. Much of this success can be attributed to the structural, regulatory and institutional changes that have been introduced over the last few years. I believe we are now well placed to capitalise on these underlying strengths to shape our bond market to a much stronger presence in the region. Let me share with you, what I believe are some of these key strengths.
7. Firstly, we have in place a robust regulatory framework for the bond market that encompasses the issuance, trading and intermediation segments. Our approval process is highly efficient with approvals given in 14 working days. For sukuk, there is a transparent issuance framework to ensure consistency in the application of acceptable Shariah principles.
8. Secondly, there is a strong pool of professionals operating in the bond market who are knowledgeable in the origination, execution and distribution. These experts play an important part in opening the door, through appropriate structuring advice, for issuers to tap the bond market. We also have a deep pool of Shariah advisers, who can value-add in structuring deals that are intended to be Shariah compliant. The availability of such a diversified pool of professionals and expertise has provided more opportunities for issuers to consider, when accessing the bond market.
9. Thirdly, we believe there are high levels of liquidity in the market as seen by the continuing strong demand in the market place. The recent sukuk issuance by Binariang is of course impressive, considering the large size and the market’s ability to absorb the paper. Based on estimates of the current-account surplus and savings-investment gap as well as growth of institutional funds, investments into the bond market are expected to continue to increase.
10. Fourthly, a vastly improved market infrastructure is in place to further develop secondary liquidity and enhance levels of transparency in the market place. This includes the establishment of the bond pricing agency, that provides a reliable and independent set of fair value prices for the bond market, and complements prices traded on the OTC market. The latest addition in market infrastructure is the Electronic Trading Platform (ETP) a reporting and automated trading system, launched just 5 days ago by Bursa Malaysia, that is intended to provide greater pricing and information transparency to the market place.
11. We are also seeing increasing levels of foreign participation in the bond markets. To date, the total issuance facilities launched by foreign issuers stand at RM12 billion. At the same time, we are also seeing an increase in foreign investment in the domestic bond market. Although small in absolute terms, it has nevertheless increased by more than 4 times, from RM3.2 billion in 2004 to RM14.3 billion today.

Finally, but not least, we have a strong global niche in Islamic finance, as a leader in sukuk issuance. Malaysia accounts for over 60% of the total sukuk issued globally and many ‘world-firsts’ have been issued out of Malaysia, including:

  • the first global sovereign sukuk worth USD600 million in 2002 by the Government;

  • the first exchangeable sukuk worth USD750 million in 2006 by Khazanah Nasional Berhad; and

  • the largest sukuk issued worth RM15.4 (USD4.8) billion in 2007 by Binariang GSM Sdn Bhd.


Much of our success in the sukuk market can be attributed to the proactive initiatives both by policy makers and market participants to establish and incentivise the development of Islamic finance, including in the area of Islamic capital market.

Leveraging on Our Strengths to Enhance Competitive Positioning

14. I am firmly of the view that we now need to focus our efforts on leveraging on these strengths and competitive advantages to enhance our international competitiveness and establish a strong regional footprint for our bond market. The window of opportunity however is getting narrower by the day and I would like to urge all market participants to work with us to identify ways in which we can position ourselves across all or specific aspects of the bond market value chain – whether in the areas of origination, execution, distribution, listings, trading or even settlement. However, in order for this to occur additional efforts must be made.
15. Firstly, market intermediaries must take the necessary steps towards further acquiring and enhancing relevant skills and expertise to expand their distribution capabilities to tap additional pools of liquidity and investors beyond the domestic market. The role of advisers has now dramatically expanded. Not only do they advise on a broad range of sophisticated financial transactions, but they also need to be able to distribute to investors who may not be familiar with the new products. This requires advisers to target new groups of investors, both local and international, and venture into foreign markets. Therefore in an increasingly competitive environment, the success of our intermediaries in bringing in more participants as issuers or investors into our bond market will play a catalytic role in internationalising the market.
16. Second, there must be further efforts made to enhance the depth and breadth of the market place through a more intensified product innovation process. Malaysia undoubtedly has a big lead in the Islamic space, as demonstrated by the number of “world-firsts” that we have achieved. But in a highly competitive environment, there is no room for complacency as other markets are catching up fast. Product innovation should continue to be given focus as not only does it provide competitive pricing for investors and competitive funding costs for issuers, it also enables greater product diversification in the market place. Whilst on the topic of product innovation, it is worth emphasising the importance of our derivatives market for risk management and hedging purposes.
17. Third, we should place stronger emphasis on the development and growth of the sukuk market. There is strong demand for Shariah compliant assets by Islamic funds, Islamic banks and Takaful for investment and liquidity management purposes. There is also demand from issuers, wishing to tap the petro-dollar liquidity pools and wanting to be recognised as Shariah compliant companies. These combine to provide compelling reasons to accelerate our efforts in this area and ensure that Malaysia continues to offer the right value propositions to meet demand.

Fourth, I believe a lot more can be done in the area of promotions and marketing. All of us must play a role in highlighting, promoting and marketing the Malaysian bond market success story to a wider audience. This is a job for all, not just the government and regulators.

Greater collaborative efforts must therefore be made by all market players to provide the right information, highlight the key achievements, remove misperceptions as well as actively engage with issuers and investors to encourage their participation in the market.

19. Apart from the advisers, the supporting market players, such as the credit rating agencies and bond trustees must also play their part in ensuring that the right skills, resources and diligence levels are in place to meet the demands of the ever growing and challenging market place as well as more demanding and discerning investors. For instance, bond trustees must play a more proactive role in discharging their duties to safeguard the interests of bondholders. Similarly, credit rating agencies (CRAs) should also continuously enhance their professional skill sets and expertise to strengthen their credibility amongst local, and international investors given the increasing number of foreign issuers and investors entering our market.

The role of CRAs in the bond market has been subject to closer scrutiny once again. While the debate is still on-going, there are a few key observations, worth noting. For example, the issue of conflict of interest continues to surface; and must in my view be adequately managed. In a market environment that is experiencing rapid growth and development, it is essential that CRAs ensure that they are able to deliver effective rating services, including the provision of high quality rating and the ability to undertake proper rating surveillance. The issue of data quality should also not be compromised, as it is fundamental for making accurate credit assessment and analysis. This is particularly acute where available data may be too short to provide a good basis for an assessment of the risk trends.

All of these pose challenges to our CRAs, and even more so in an environment where investors are increasingly becoming dependent on rating services for credit assessment and institutions for capital purposes.

21. In our own area of direct influence, the SC constantly reviews the legal and regulatory framework to ensure they serve the market place effectively. Policies are assessed against international best practices to ensure that they remain relevant and facilitative. Any efforts towards providing a more liberalised regulatory framework however will be pursued after careful consideration on issues relating to investor protection and maintenance of a fair and orderly market, as these principles remain fundamental to our core regulatory objectives.


22. Malaysia has made remarkable progress in developing our bond market and I believe the outlook for 2008 still remains positive. The early signs are favourable with bonds worth RM 24.2 bil approved within the first two months of this year compared to the RM 9.3 bil for the same period in 2007.
23. We have indeed come a long way, and largely achieved what we set out to do as outlined in the Capital Market Masterplan. But for the market to move forward and beyond where we are today, there is a pressing need for all parties to work together to capitalise on opportunities to enhance Malaysia’s position as a key player in the regional market.

In closing, allow me to congratulate the award winners for a job well done.

Thank you.