KUALA LUMPUR: National financial guarantee insurer Danajamin Nasional Bhd does not expect the current low levels of bond and sukuk issuances in the country to persist beyond this year, terming it a “temporary” market situation.
“The relatively low issuances currently is not a trend but a temporary market situation arising from typical macroeconomic factors,” chief executive officer Mohamed Nazri Omar told The Edge Financial Daily recently.
“We are cognisant of the fact, alongside banks and other players in the capital markets sphere, that the fundraising market has generally slowed down in 2014,” he said, adding that many potential issuers have been holding back for various reasons or are tapping into alternative sources of funding.
Danajamin, which was established after the global financial crisis in 2009 to provide financially viable companies access to the private debt securities market to obtain financing, has itself seen a drop in local bond issuances and consequently, the number of credit guarantees it has “wrapped” in recent years.
This year, for example, only one financial guarantee has been made by Danajamin — in the form of a RM305 million deal for Great Realty Sdn Bhd — together with CIMB Bank Bhd, who will be providing Great Realty with a RM135 million term loan facility out of the RM305 million.
“As much as we would like to help corporates to tap into the capital market, much of it is market driven. We will not push corporates to issue [bonds/sukuk] simply for the sake of issuing,” he said.
Nevertheless, he said Danajamin does actively follow up with potential issuers as well as receive deal referrals from bankers. It also conducted roadshows at the start of the year.
Danajamin is now “cautiously optimistic” that it will see more long-term projects requiring funding in 2015, driven by infrastructure projects with long gestation periods, said Mohamed Nazri.
“As a nation with [continual] development aspirations such as ours, there will always be a need for long-term fixed rate funding and for companies to tap the capital markets to avoid running into the risk of asset liability mismatching, as seen during the 1997/98 financial crisis,” he said.
In preparation for the potential pick-up in demand for credit wraps next year, Mohamed Nazri said Danajamin has inked a strategic collaboration agreement with the Credit Guarantee and Investment Facility (CGIF), a trust fund of the Asian Development Bank, to jointly undertake transactions with potential obligors with the aim of closing transactions together in Malaysia, as well as to build capacity and transfer knowledge.
On why Danajamin has been partnering third parties like banks to formulate credit wraps in recent years instead of delivering them on its own, Mohamed Nazri said it was in line with its strategy to “deliver value” to issuers and investors.
“It is more strategic to seek the benefit of partnerships with financial institutions to create market familiarity or ‘strategic profiling’ for the issuances,” he said, adding that partnerships go beyond risk-sharing objectives by creating more credibility for the issuer via positive evaluations from multiple parties.
Mohamed Nazri pointed out that this is what Danajamin has in mind for its partnership with CGIF, in addition to being able to facilitate longer-term tenures, as well as creative and/or alternative structuring options for greater diversity in the credit paper it guarantees.
“Additionally, we will be able explore opportunities with CGIF should there be potential international issuers who wish to tap into the ringgit as CGIF is a multilateral issuer,” he said.
This article first appeared in The Edge Financial Daily, on October 7, 2014.