KUALA LUMPUR, April 16 – The Securities Commission (SC) expects corporate bonds and sukuk issuances for this year to be between RM90 billion and RM100 billion, despite business disruptions caused by the Covid-19 pandemic, said deputy chief executive Zainal Izlan Zainal Abidin.
He said over the past three years, Sukuk accounted for 70 per cent of corporate issuances, and the SC does not foresee any reason for the proportion to be significantly different this year.
“We see a large pool of demand for Syariah-compliant investment products,” he said during a virtual media conference today.
In its Annual Report 2019 released today, the SC said that the total issuances of Malaysian corporate bonds and Sukuk stood at RM132.82 billion in 2019; a 25.96 per cent increase from RM105.45 billion issued in 2018.
Meanwhile, Zainal said the SC is looking at Islamic finance, particularly the Islamic capital market to seek for significant opportunities in the light of current market challenges.
“Even prior to Covid-19 outbreak, we have seen and heard talks on alignment of the underlying principal between Islamic finance, sustainability and responsible investing.
“The SC has been a key proponent in this area, and we believe that this will continue given the greater need for funds for social projects; and Islamic finance as well as the Islamic capital market can certainly come into play,” he said.
Apart from Sustainable and Responsible Investments (SRI) or Sustainable Development Goals bonds, there will also be other innovations in the market.
For instance, the SC is working on driving and facilitating the offering of Wakaf-based collective investment scheme to complement the range or products in social finance, particularly in the Islamic capital market.
Meanwhile, when asked if the SC expects more defaults among bond and Sukuk issuers, including public-listed companies and peer-to-peer issuers, SC’s Market and Corporate Supervision executive director Kamarudin Hashim said the default rate in the corporate bond market have declined significantly since the Asian Financial Crisis.
“During that time, the default rate was about 9.4 per cent and it has come down to below one per cent last year.
“Moving forward, due to uncertainties following the Covid-19 pandemic as well as the slower global growth, several issuer segments may see higher risks to their credit position – aviation, oil and gas trading and services,” he cautioned.
Kamarudin said that these are segments under stress, and they currently represent around eight per cent of total corporate bond issuances.
“Nevertheless, it is important to emphasise that issuers within these segments may experience some financial stress in the short term that could weaken their credit positions, but not necessarily result in default as the majority of the companies are in the AAA rating and AA rating categories,” he said.
Even in the event of default, he said, the companies will have the option to preserve their investments through negotiations such as rescheduling or restructuring; or rigorously pursuing contractual rights and priority of claims against the issuers.
“They can also work with the operator if they are under stress for possible restructuring and rescheduling,” he said. — Bernama
