Kuala Lumpur, 23 October 2000
The Securities Commission (SC) is pleased to announce, on behalf of the National Bond Market Committee (NBMC), the relaxation of some restrictions on the utilisation of proceeds from issuance of private debt securities (PDS). This in line with the recent relaxation of lending restrictions by Bank Negara Malaysia (BNM).
finance these properties if construction has commenced; and
re-finance these properties where approval for the loan has been granted.
SECURITIES COMMISSION MALAYSIA
1. (a) development of the following properties:
(i) Residential properties and shop houses where the individual unit costs more than RM250,000 each, except where the development is located in Sabah and Sarawak; and(ii) New hotels, resorts, office buildings, golf courses, clubs and shopping complexes.
(b) Where mixed property development is involved, the proceeds from the issue of debentures must strictly be used to finance the development of properties other than those stated in paragraph 1(a).
(c) Purchase of land for the purpose of developing properties stated in paragraph 1(a).
2. However, financing for the following purposes is exempted from the restrictions imposed on properties stated in paragraph 1(a):
(i) Development of residential properties and shop houses priced above RM250,000 per unit where the excess price of more than RM250,000 is due to additional land area such as corner or end units;(ii) Development of residential properties, shop houses and office blocks in Putrajaya and Cyberjaya; and(iii) Development of residential properties, shop offices, commercial building, shopping complex and hotel in Kulim Technology Park.(iv) Financing of properties described in paragraph 1(a) where construction has commenced, in the case of RCCs only;(v) Refinancing of properties described in paragraph 1(a) where approval for the loan has been granted, in the case of RCCs only;
3. For NRCCs additional restrictions may be imposed as stated in the Controller of Foreign Exchange's Guidelines on Private Debt Securities.
1. Why does the NBMC limit the utilisation of proceeds from bond issues in the case of certain activities?
These restrictions as stipulated by NBMC are to ensure that the utilisation of bonds proceeds is consistent with existing national macro economic objectives and Bank Negara Malaysia's (BNM) policies on bank lending which have been in force since January 1999. These existing policies are intended to address the over supply situation in some segments of property sector.
2. What are these limitations?
These are stated in Appendix 1. (ie the NBMC's Negative List)
3. Are there additional restrictions imposed on non-resident controlled companies (NRCCs)?
There are additional restrictions imposed by the Controller of Foreign Exchange (CFE) which are consistent with existing policies on foreign exchange control. These restrictions are found in the CFE's Guideline on Private Debt Securities.
4. Can proceeds of a bond issue be used for investment abroad or to refinance existing offshore borrowings?
All NRCCs and resident controlled companies (RCCs) require the prior permission of the CFE to utilise the proceeds for investments abroad or to refinance existing offshore borrowings.
5. If a company currently owns a commercial complex and wishes to re-finance the existing loan by utilising proceeds from the issuance of new bonds would it be able to do so?
Yes. The NBMC Negative List only intends to limit the provision of bridging finance for new developments in certain segments of properties including commercial complexes. Hence, under paragraph 2 (v) of the NBMC Negative List, the refinancing of such properties are exempted from the restrictions. The exemption only applies to RCCs. An NRCC would require the prior permission of the CFE for such refinancing.
6. If a company currently owns a hotel and wishes to raise finance through a bond issue in order to re-furbish/upgrade the hotel, would it be able to do so?
The NBMC Negative List is introduced with the objective to curb an increase in supply in certain segments of properties which includes the development of new hotels. Thus, if the refurbishment or upgrading process does not contribute to the creation of more hotel rooms, bonds issued for such purpose would fall outside the NBMC Negative List. The hotel company company concerned should always ensure at all times that any such refurbishment does not breach the overall restrictions in the NBMC Negative List as stated in paragraph 1(a) of Appendix 1.
7. A company currently owns a very old hotel and wishes to demolish it to build a new hotel. It is now seeking to raise funds through a bond issuance to build the new hotel. Can it do so?
The demolition of an old hotel to make way for the development of a new hotel would defeat the objective of the NBMC Negative List which is to curb the further supply of hotel properties. Such bond financing is therefore not permitted.
8. If a company is seeking to develop condominium blocks priced above RM250,000 per unit together with a new toll road granted to it under a concession given by the Federal Government, would the company be able to use the proceeds from the bond issuance to fund the whole development?
With regard to a mixed development described above, the proceeds from the issue of debentures must not be channelled to finance the development of properties limited by the NBMC Negative List such as the development of condominium blocks priced above RM250,000 per unit. In this regard, the proceeds from the bond issuance can only be used solely to finance the development of the new toll road concession given by the Federal Government.
9. If a company raised funds from a bond issue to buy land for the purpose of building a hotel or shopping complex, would it be able to do so?
Purchase of land for the purpose of developing properties limited by the NBMC Negative List including hotel and shopping complex would not be allowed by the NBMC. If the land was purchased with the intention of constructing a university (for example) upon it, funds from a bond issuance would be permitted to be utilised for such purposes.
10. Would the proceeds from a bond issuance be able to be utilised for the development of an exhibition or conference hall?
The exhibition or conference hall does not specifically fall within any category of properties limited by the NBMC for bond financing and should therefore be allowed.
11. Would the proceeds from a bond issuance be able to be utilised for the development of a hypermarket?
A hypermarket providing a wide spectrum of consumer goods would inevitably fall into the category of "shopping complex" under the NBMC Negative List. A bond issuance for such purpose would therefore not be allowed.
12. Can a Malaysian company raise funds through a bond issue in order to purchase land for its land bank?
Unless it is demonstrated that the land bank is acquired for future development of properties not limited in the NBMC Negative List, the real property company would not be allowed to issue bond to finance purchases of land.
13. At the point of issuance of debentures, the stated utilisation of proceeds did not fall within the NBMC Negative List. However, a year later, due to changes in the NBMC Negative List, the utilisation of proceeds has been disallowed under NBMC Negative List. Can the company still apply proceeds from the bond issuance to the stated purpose?
The company will be allowed to continuously apply proceeds from the bond issuance to the stated purpose even though the purpose has now fallen within the NBMC Negative List.
14. The NBMC Negative List, as an exemption, allows for the utilisation of bond proceeds for the financing of properties where construction has commenced. When would construction be considered to "have commenced". If a debenture was issued to raise funds for the development of a shopping complex where the developers have begun earthworks on site, would that be allowed?
No. Generally, as a rule of thumb, construction would be considered to have begun when the construction of physical structures on site have commenced (example - foundation/piling works).
The exemption only applies to resident controlled companies. An NRCC would require the prior permission of the CFE before such an exemption.