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©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
19th June 2009
Reference Pricing Service
REDUCING YOUR FUNDING COSTS : A FORUM FOR EXISTING & POTENTIAL BOND ISSUERS
What is a Bond Pricing Agency About Us – Bond Pricing Agency Malaysia Sdn Bhd
What and Why Market Study Deliverables Fees and Charges Subscription Procedure
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
BOND TRACKER
POST ISSUANCE PRELIMINARY STUDY (PIPS)
I. II. III. IV. V.
REFERENCE PRICING SERVICE (RPS)
I. II.
BACKGROUND
CONTENTS
What is a Bond Pricing Agency About Us – Bond Pricing Agency Malaysia Sdn Bhd
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
I. II.
BACKGROUND
Current method Quotes from brokers or banks, a few via internally generated models – bias?
Increase Liquidity
Managing and Monitoring Risk
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Increase Transparency
Compliance & Audit
The BPA provides evaluated pricing on all the bonds on any given day The BPA employ reliable database and evaluation methodology. This methodology MUST be transparent and consistent
The Solution
Problem The Need Less than 1% are traded Daily valuation of bond daily, where are the prices for portfolios for NAV calculation the remaining 99%? and portfolio valuation
Why Fair Valuation?
A Bond Pricing Agency (BPA) is a market neutral entity whose role is to provide fair valuations on bonds, complying with regulations issued by the Securities Commission
1.0 What Is A Bond Pricing Agency
Improving the Soundness of Financial Institutions
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
• Providing price discovery may assist in financial institutions' compliance to international standards such as IAS 39 and Basel 2 requirements. • Effectiveness of risk management will be further enhanced as the valuation process will be consistent and not arbitrary
Promoting New Product Development
• From an origination and underwriting perspective, primary level pricing becomes challenging especially for lower credits • Mark-to-market pricing on previously issued corporate bonds can promote new corporate bond issues by functioning as benchmarks for primary level pricing
• BPA valuation approved by the SC may revitalize the bond market using markto-market prices as benchmark by publicly announcing them • Marking-to-market system provide strategy alternatives to traditional hold-tomaturity strategies.
• BPA’s transparency in the methodologies being used will spur the evolution of the bond market with further advance pricing methodologies • When advance pricing methodologies are established, it will encourage more bond offerings and more active trading of these products in the secondary market.
Revitalizing the Primary Market for Bonds
Revitalizing the Secondary Market for Bonds
1.1 What Is A Bond Pricing Agency
• Evaluated and approved by regulators • FRS 132 on valuation technique
Works under regulatory guidelines
• Is not a pro-active model to pre-empt prices • Is a passive reactive model to market conditions
Is Not a Predictive Valuation Model
• An accounting device to capture market value • Act as a reference only
An Accounting Device
• Mark-to-market using fair valuation approach does not set the definitive market price
Not the Definitive Market Price
Fair valuation is the act of using recent arm’s length market transactions and relative comparison with peers and benchmarks in deriving an instrument’s estimated current price.
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
•
Defining fair valuation :
1.2 Introducing The Bond Pricing Agency Concept
Professional indemnity insurance RM 10 million
System Adequate security and backup
Pricing performance 3 month market acceptance test
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Shareholders No controlling party
Methodology and Process Audited
Minimum paid up capital RM 10 million
Expertise Fit and proper persons
Bond Pricing Agency Malaysia has met and exceeded these requirements, and was appointed as the first registered Bond Pricing Agency on 18th April 2006
1.3 Bond Pricing Regulations
January 3: Guidance Note 15 on Mandatory use of BPA prices by unit trust companies Sept 15: Bondweb Malaysia is now known as Bond Pricing Agency Malaysia Sdn Bhd
April 18: Appointed Malaysia’s first Bond Pricing Agency
March: Website launched July: BondStream pilot launched Sept: Full marked-to-market process Oct: Commercial deployment of BondStream
Sept: Bondweb Malaysia Sdn Bhd established
“Funds investing in Ringgit-denominated bonds shall value bond portfolios on daily basis using fair value prices quoted by a Bond Pricing Agency (BPA) registered with the SC.”
The Securities Commission issued Guidance Note 15 dated 15 December 2006 pursuant to the Guidelines on Unit Trusts Funds, which outlined the policy for Unit Trusts on use of BPA prices:
With participation from: Rating Agencies on data and technical support Regulators in observer and advisory role Market community (buy/sell side, brokers) via “Bottom Up” approach
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Status as of now > 90 clients (banks, AMC, UTMC, insurance companies, corporate, quasi governments)
2008
2007
2006
2005
2004
2001 - 2004
Began groundwork in Malaysia Discussions with SC and BNM Market study and research
Bond Pricing Agency Malaysia (BPAM) was incorporated in 2004.
2.0 Bond Pricing Agency Malaysia Sdn Bhd
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2.1 BPA Malaysia’s Clients
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2.2 BPA Malaysia’s Clients (cont)
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
9)Customized Data Delivery
8)RBC Support Pack
7)Basel II Support Pack
6)Bond Index
5)Bond Tracker
4)Post Issuance Preliminary Study (PIPS)
3)Reference Pricing Service
2)Bond Information - Primary Market Data - Secondary Market Data
1)Fair Valuation - Daily MTM prices/yields
Optimised to the needs of market participants
2.3 BPA Malaysia’s Product Lines
What and Why Market Study Deliverables Fees and Charges Subscription Procedures Additional Product Line for Issuer
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
I. II. III. IV. V. VI.
REFERENCE PRICING SERVICE (RPS)
The RPS service from BPAM allows issuers to obtain an independent, unbiased report on reference yield levels. This data will provide them with the information required to make evaluated, informed decisions regarding the pricing of their bond issue.
• Issuers receive updates on market rates from arranging banks. However, there is potentially a conflict of interest and the banks may not have the economic incentive to quote fair rates.
• Many issuers are dependent on their arranging banks for rates, thus find it difficult to make an informed decision regarding financing costs.
• Greater price transparency where issuers are fully aware of market levels with full information
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Current Method
Dystopia
Utopia
The Need
• A more efficient price discovery process for issuers in order to minimize their borrowing costs.
1.0 What is Reference Pricing Service?
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
To provide you the necessary information when negotiating the final rates with the buyers and arrangers of the issue.
To indicate the fair price for the proposed bond issue based on the current interest rate and economic environment
1.1 Why Do You Need It ?
REFERENCE PRICING SERVICE Reduce Your Borrowing Costs
• The entire issue is taken up by the Lead Arranger
Bought Deal • Source for quotes in terms of pricing and amount from selected potential investors.
Book Building
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
• Targeted institutional investors • Pricing is based on negotiation
Private Placement
1.2 Methods of Issuance
• Is open to all FAST members. • All investors can submit their bids via FAST members.
Competitive Tender
3 Years
826
840bp
Highest Deviation from Curve (bp)
11%
8%
11%
AA3
Highest Deviation from Curve (class)
Above 100bp
81-100bp
61-80bp
41-60bp
21-40bp
1-20bp
This implies that the bonds were issued at heavy discount as the Class Curves represents the market average rate for the particular credit quality
Majority of new bonds issued had coupon levels above 100bp of the BNM Consolidated Class Curves on the day of issuance
Coupon To BNM Class Curves Observation On Day Of Issuance
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Highest Deviation from Curve (tenure)
12%
Number of Matched Issuances to Curve
46%
12%
Coupon to BNM Curve Spreads for AAA-A On Day Of Issuance Between June 2005- Mar 2009
We conducted a market study over a few credit classes (AAA to A bonds). Our studies have shown that price discrepancies between the cost of funding (assumed to be coupon level) to market levels in the secondary market are very high
2.0 Market Study on Credit Classes – AAA to A
19%
50%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
5%
5%
6%
15%
1-20bp
Coupon Level to Traded Level Spread for AAA Transactions Between 2003-2008
– Coupon Level Vs Traded Level
50% of the AAA rated new issuance had coupon level above 20 bps of the Traded yield after issuance.
Coupon To Traded Level Observation
A Study on AAA Credit Class within 1 Month from Issuance
2.1 Market Study on Credit Classes – AAA rated
17%
6%
15%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
10%
33%
19%
1-20bp
Coupon Level to BNM Curve Spread for AAA Transactions Between 2003-2008
- Coupon Level Vs BNM Curve
81% of the AAA rated new issuance had coupon level above 20 bps of the BNM consolidated Class Curve after issuance
Coupon To BNM Curves Observation
A Study on AAA Credit Class within 1 Month from Issuance
2.2 Market Study on Credit Classes – AAA rated(cont)
7%
5%
14%
36%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
1-20bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
4%
34%
Coupon to Traded Level Spread for AA Transactions Between 2003-2008
– Coupon Level Vs Traded Level
64% of the AA rated new issuance had coupon level above 20 bps of the Traded yield after issuance.
Coupon To Traded Level Observation
A Study on AA Credit Class within 1 Month from Issuance
2.3 Market Study on Credit Classes – AA rated
14%
10%
11%
11%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
39%
15%
1-20bp
Coupon to BNM Curve Spread for AA Transactions Between 2003-2008
– Coupon Level Vs BNM Curve
85% of the AA rated new issuance had coupon level above 20 bps of the BNM consolidated Class Curve after issuance
Coupon To BNM Curves Observation
A Study on AA Credit Class within 1 Month from Issuance
2.4 Market Study on Credit Classes – AA rated (cont)
18%
10%
29%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
1-20bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
19%
10%
14%
Coupon to Traded Level Spread for A Transactions Between 2003-2008
– Coupon Level Vs Traded Level
71% of the A rated new issuance had coupon level above 20 bps of the Traded yield after issuance.
Coupon To Traded Level Observation
A Study on A Credit Class within 1 Month from Issuance
2.5 Market Study on Credit Classes – A rated
14%
8%
12%
11%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
1-20bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
50%
5%
Coupon to BNM Curve Spread for A Transactions Between 2003-2008
– Coupon Level Vs BNM Curve
50% of the A rated new issuance had coupon level above 100 bps of the BNM consolidated Class Curve after issuance
Coupon To BNM Curves Observation
A Study on A Credit Class within 1 Month from Issuance
2.6 Market Study on Credit Classes – A rated (cont)
26-Jun-02
24-Jun-02
22-Jun-02
20-Jun-02
18-Jun-02
16-Jun-02
14-Jun-02
12-Jun-02
10-Jun-02
08-Jun-02
06-Jun-02
04-Jun-02
Monetary Loss from coupon at last curve = [BNM indicative rate% - Coupon Level%] x Issue Amt
Monetary Loss from coupon at last trade = [Traded Yield% – Coupon Level%] x Issue Amt
28-Jun-02
4.4
4.6
4.8
5.0
5.2
5.4
Cost of Capital
Actual Market Cost
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4.4
04-Jun-02
5.6
Case Study 2002- AAA Bond from a Road and Toll Concessionaire
06-Jun-02
BNM CURVE
08-Jun-02
4.6
10-Jun-02
4.8
12-Jun-02
Traded Yield
14-Jun-02
5.0
16-Jun-02
5.2
18-Jun-02
Coupon Rate
22-Jun-02
5.4
24-Jun-02
5.6
Actual Market Cost
Cost of Capital
Coupon Level 5.40% . Within one month after issue, the traded yield has descended quickly to 4.74% Issue Amount = RM 550 million Monetary Loss from coupon at last trade = RM 3,657,500 % of Monetary Loss = 0.67%
20-Jun-02
Case Study 2002 - AAA Bond from a Road and Toll Concessionaire
Traded Yield Level
We note that traded levels in the secondary market drop tremendously.
We also studied the traded levels after the issue date in the Secondary Market.
26-Jun-02
Traded Yield Level
2.7 One Month After Issuance - AAA Rated
28-Jun-02
26-Jun-02
24-Jun-02
22-Jun-02
20-Jun-02
18-Jun-02
16-Jun-02
Traded Yield Level
Credit Cost (BNM Curve)
Cost of Capital Credit Cost
Cost of Capital
BNM CURVE
Traded Yield
Coupon Rate
Monetary Loss from coupon at last trade = RM 3,657,500 % of Monetary Loss = 0.67%
Monetary loss from coupon at last curve = RM 4,257,000 % of Monetary Loss = 0.77%
BNM last Curve at 4.63% Coupon Rate at 5.40% Last Trade Yield at 4.74% Issue Amount = RM 550 million
Credit environment as reflected in the BNM Consolidated Indicative Yield was stable throughout 1 month after the issue date on Bond AAA
Comparison Between Coupon Rate, Traded Yield and BNM Indicative Curve
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4.4
4.6
4.8
5.0
06-Jun-02
06-Jun-02
5.2
08-Jun-02
08-Jun-02
5.4
28-Jun-02
Case Study - AAA Bond from a Road and Toll Concessionaire
10-Jun-02
10-Jun-02
5.6
12-Jun-02
12-Jun-02
Traded Yield Level
14-Jun-02 14-Jun-02
4.4
16-Jun-02
4.6
18-Jun-02
4.8
20-Jun-02
5.0
22-Jun-02
5.2
24-Jun-02
5.4
04-Jun-02
Case Study 2002 - AAA Bond from a Road and Toll Concessionaire
26-Jun-02
5.6
04-Jun-02
2.8 One Month After Issuance - AAA Rated (cont)
28-Jun-02
30-May May-07
28-May May-07
26-May May-07
24-May May-07
22-May May-07
20-May May-07
18-May May-07
16-May May-07
14-May May-07
12-May May-07
10-May May-07
08-May May-07
06-May May-07
04-May May-07
02-May May-07
30-Apr Apr-07
4.5
4.7
4.9
5.1
5.3
30-Apr-07
Traded Yield Level
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Monetary Loss from coupon at last curve = [BNM indicative rate% - Coupon Level%] x Issue Amt
Monetary Loss from coupon at last trade = [Traded Yield% – Coupon Level%] x Issue Amt
5.5
5.7
5.9
6.1
6.3
Actual Market Cost
Cost of Capital
Case Study 2007 - AA Bond from a Utility Corporate
02-May-07
6.5
04-May-07
4.5
BNM CURVE
06-May-07
4.7
08-May-07
4.9
10-May-07
5.1
12-May-07
5.3
14-May-07
Traded Yield
16-May-07
5.5
18-May-07
5.7
20-May-07
5.9
22-May-07
Coupon Rate
24-May-07
6.1
26-May-07
6.3
Actual Market Cost
Cost of Capital
Coupon Level 6.38% Within one month after issue, the traded yield has descended quickly to 5.20% Issue Amount = RM 700 million Monetary Loss from coupon at last trade = RM 8,271,900 % of Monetary Loss = 1.18%
28-May-07
6.5
Traded Yield Level
2.9 One Month After Issuance - AA Rated
30-May-07
02-May-07
02-May-07
30-Apr-07
30-Apr-07
Traded Yield Level
BNM CURVE
Traded Yield
Coupon Rate
Credit Cost (BNM Curve)
Cost of Capital Credit Cost
Cost of Capital
Monetary Loss from coupon at last trade = RM 8,271,900 % of Monetary Loss = 1.18%
Monetary loss from coupon at last curve = RM 4,257,000 % of Monetary Loss = 0.77%
BNM last Curve at 5.24% Coupon Rate at 6.38% Last Trade Yield at 5.20% Issue Amount = RM 700 million
Comparison Between Coupon Rate, Traded Yield and BNM Indicative Curve
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4.5
4.7
4.9
5.1
5.3
5.5
5.7
5.9
6.1
6.3
20-May-07
Case Study 2007 - AA Bond from a Utility Corporate
04-May-07
04-May-07
6.5
06-May-07
06-May-07
4.5
08-May-07
08-May-07
4.7
10-May-07
10-May-07
4.9
12-May-07 12-May-07
5.1
14-May-07 14-May-07
5.3
16-May-07 16-May-07
5.5
22-May-07 20-May-07
5.7
24-May-07 22-May-07
5.9
26-May-07 24-May-07
6.1
28-May-07 26-May-07
6.3
28-May-07
6.5
18-May-07 18-May-07
Traded Yield Level
30-May-07
2.10 One Month After Issuance - AA Rated (cont)
30-May-07
30-May May-03
28-May May-03
26-May May-03
24-May May-03
22-May May-03
20-May May-03
18-May May-03
16-May May-03
14-May May-03
12-May May-03
10-May May-03
08-May May-03
06-May May-03
04-May May-03
02-May May-03
30-Apr Apr-03
6.0
6.5
30-Apr-03
Traded Yield Level
Cost of Capital
Actual Market Cost
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Monetary Loss from coupon at last curve = [BNM indicative rate% - Coupon Level%] x Issue Amt
Monetary Loss from coupon at last trade = [Traded Yield% – Coupon Level%] x Issue Amt
02-May-03
7.0
04-May-03
7.5
06-May-03
8.0
Case Study 2003 - A Bank Sub-debt
08-May-03
8.5
10-May-03
6.0
12-May-03
BNM CURVE
14-May-03
6.5
16-May-03
7.0
18-May-03
Traded Yield
20-May-03
7.5
22-May-03
Coupon Rate
24-May-03
8.0
Actual Market Cost
Cost of Capital
Coupon Level 7.95% Within one month after issue, the traded yield has descended quickly to 6.69% Issue Amount = RM 200 million Monetary Loss from coupon to last trade = RM 2,516,800 % of Monetary Loss = 1.26%
26-May-03
8.5
28-May-03
Case Study 2003 - A Bank Sub-debt
Traded Yield Level
2.11 One Month After Issuance - A Rated
30-May-03
24-May-03
04-May-03
30-Apr-03
30-Apr-03
Traded Yield Level
Credit Cost (BNM Curve)
Cost of Capital Credit Cost
Cost of Capital
BNM CURVE
Traded Yield
Coupon Rate
Monetary Loss from coupon at last trade = RM 2,516,800 % of Monetary Loss = 1.26%
Monetary loss from coupon at last curve = RM 3,070,000 % of Monetary Loss = 1.45%
BNM last Curve at 6.42% Coupon Rate at 7.95% Last Trade Yield at 6.69% Issue Amount = RM 200 million
This clearly is not reflective of market reality.
However, traded yield levels were on a descending trend in the same timeframe eventhough the BNM curve was stable throughout 1 month after issuance date.
Comparison Between Coupon Rate, Traded Yield and BNM Indicative Curve
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6.0
6.5
06-May-03
06-May-03
7.0
08-May-03
08-May-03
7.5
10-May-03
10-May-03
8.0
26-May-03
Case Study 2003 - A Bank Sub-debt
12-May-03
12-May-03
8.5
14-May-03 14-May-03
6.0 16-May-03 16-May-03
6.5
18-May-03 18-May-03
7.0
20-May-03 20-May-03
7.5
24-May-03
8.0
22-May-03 22-May-03
Traded Yield Level
28-May-03 26-May-03
8.5
02-May-03
02-May-03
Case Study 2003 - A Bank Sub-debt
30-May-03 28-May-03
04-May-03
2.12 One Month After Issuance - A Rated (cont)
30-May-03
05-Sep02
01-Sep02
28-Aug02
22-Aug02
7-year AAA Bond From Property Corporate
11-Sep02
18-Aug02
7 Yr BNM AAA Indicative Level
Traded Yield
Coupon Rate
3 Yr BNM AAA Indicative Level
Traded Yield
Coupon Rate
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4.0
4.2
4.4
4.6
4.8
5.0
5.2
5.4
3.5
20-Aug02
24-Apr03
3.6
24-Aug02
26-Apr03
3.7
26-Aug02 28-Apr03
3.8
30-Aug02 30-Apr03
3.9
03-Sep02
02May-03
4.0
Case Study - 3-year AAA Bond from Property Corporate
07-Sep02
04May-03
16-Aug02
22-Apr03
09-Sep02 06May-03
Rate (%)
Rate (%)
7yr AAA : Coupon Rate – Traded Yield = - 97 bps
3yr AAA : Coupon Rate – Traded Yield = -35 bps
The coupon level were set much higher than the BNM indicative AAA curve.
Assuming Funding Cost = Coupon Rate, the discrepancies in yield were observed immediately after issuance.
ii.) its earmarked equivalent 3 Yr and 7Yr BNM AAA Indicative yield level.
i.) The bond’s coupon rate for cost of funding comparison and
The graphs illustrate the Trade Trend for the AAA bond 1 month after issuance, where the traded level were compared to
2.13 Case Study 1 – Past Issuance without RPS
13-Sep02 08May-03
4.5
4.6
4.7
4.8
4.9
5.0
5.1
5.2
10-year AAA Bond From Property Corporate
24-Apr09
4.0
26-Apr09
4.1
28-Apr09
4.1
30-Apr09
4.2
02-May09
4.2
04-May09
4.3
06-May09
4.3
08-May09
4.4
10-May09
4.4
12-May09
10 Yr BNM AAA Indicative Level
Traded Yield
Coupon Rate
5 Yr BNM AAA Indicativ e Level
Traded Yield
Coupon Rate
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Rate (%)
5-year AAA Bond From Property Corporate
14-May09
4.5
16-May09
Rate (%)
* Last trade refers to last trade occurred within one month from issuance
RPS managed to narrow the borrowing spread by matching the Actual Market Cost (traded yield) and the Issuer Cost which is the coupon rate.
10yr AAA : Coupon Rate – Traded Yield = - 4 bps
5yr AAA : Coupon Rate – Traded Yield = +1 bps
Using the information provided by the RPS report , the issuer was able to close the pricing gap. The bond traded very closely at its par level.
2.14 Case Study 1 – Post Issuance with RPS (cont)
22-Apr09
22-Apr09 24-Apr09 26-Apr09 28-Apr09 30-Apr09 02-May09 04-May09 06-May09 08-May09 10-May09 12-May09 14-May09 16-May09 18-May09 20-May09 22-May09 18-May09
YIELD MOVEMENT IN BNM INDICATIVE AAA CURVE BETWEEN ISSUE DATE AND ONE MONTH AFTER (bp) BOND NAME
3.82%
Percentage of Monetary Loss %
-4
300,000
(60,000)
MARKET VALUE DIFFERENCE (RM)
Percentage of Monetary Loss %
Total Issuance Size (RM)
Monetary loss from coupon at last point: (RM)
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
500,000,000
-16
Total Issuance Size (RM)
16,796,000
10-year AAA Bond From Property Corporate
1
SPREAD BETWEEN TRADE LEVEL TO COUPON (bp)
After RPS
Conclusion : 5-year AAA Bond From RPS does help 2,304,000 -15 Property reduce this borrowing spread Corporate at the primary level.
MARKET VALUE DIFFERENCE (RM)
19,100,000
-97
-35
SPREAD BETWEEN TRADE LEVEL TO COUPON (bp)
Monetary loss from coupon at last point : (RM)
7-year AAA Bond From Property Corporate
3-year AAA Bond From Property Corporate
BOND NAME
Before RPS
2.15 Case Study 1 – Before and After RPS (cont)
0.12%
200,000,000
240,000
11
9
YIELD MOVEMENT IN BNM INDICATIVE AAA CURVE BETWEEN ISSUE DATE AND ONE MONTH AFTER (bp)
28-Jan-08
28-Jan-08
15-Jan-08
22-Jan-08
25-Jan-08
25-Jan-08
Company A, Telco IMTN 5.55% 27.12.2013 - MTN No. 2
Company A, Telco IMTN 5.65% 26.12.2014 - MTN No. 3
Company A, Telco IMTN 5.75% 28.12.2015 - MTN No. 4
Company A, Telco IMTN 5.90% 28.12.2016 - MTN No. 5
Company A, Telco IMTN 6.10% 28.12.2017 - MTN No. 6
Company A, Telco IMTN 7.10% 28.12.2022 - MTN No. 8
7.00
6.03
5.80
5.60
5.50
5.30
5.20
Last Trade Yield (%) *
RM 10.92
RM 9.18
RM 12.24
RM 14.73
RM 17.40
RM 24.13
RM 3.84
Nominal Loss At Last Trade Yield (mil)
* Last trade refers to last trade occurred within one month from issuance
Total loss from nominal amount with the last set of trades amounted to RM 92.44 Million
Seven were traded within the month from issuance with turnover volume of 699 Million
Total Loss From Nominal Amount With Last Trade Transaction Within A Month Example
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
18-Jan-08
Last Trade Date *
Company A, Telco IMTN 5.35% 28.12.2012 - MTN No. 1
Bond Name
Company A, Telco issued 8 senior Islamic MTN on 28-Dec-2007
2.16 Case Study 2 – Post Issuance with RPS
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Upon Request
10 Business Days
After the issuance date is fixed, BPAM will provide the Final Reference Pricing Update upon notification by the issuer
BPAM will deliver the Reference Pricing Rationale after receiving the complete set of documentation
Issuer submits the relevant documentation to BPAM
Signing of Appointment Letter / Agreement for the RPS
3.0 Deliverables
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This will allow you to have one-stop, real-time access to yield levels and secondary market information at any given time.
For the duration of the RPS service till issuance of the notes, BPAM would provide a complimentary User ID to access BPAM’s bond database via the BondStream software or website.
BPAM will also follow up with a final Reference Pricing Update. This will allow you to have access to the latest market pricing data prior to issue. BPAM will generate this on your notification.
Market Assessment Credit Assessment Yield Assessment Our view on the FAIR ISSUANCE YIELD
In the report we provide analyses which cover the following topics:
The Reference Pricing Rationale shall be delivered to you in the form of hardcopy report within a maximum of ten (10) business days after a complete set of documentation is received.
3.1 Deliverables (cont)
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3.2 Deliverables – RPS Report Sample (cont)
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3.3 Deliverables – RPS Report Sample (cont)
Real-time Quotes Daily trading activity Historical trades back to 2000 Trade map Market depth
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• •
• • •
Trading Data
• Real-time quote charts • Daily charts • Yield curves • Technical analysis tools
Charting
• Bond Analysis Tools • Bond Calculator • W.I Simulator • Favourite bonds • Bond Advanced Search • Bond Trade search • Custom Report generator
Analysis Tools
• Indicative Money Market rates • Research and commentaries • Real time news
• • • • • • •
Stock Info Facility Info Rating Info Bond Statistics Statistics database Corporate info database Islamic bond data
Market Data
Bond Database
Our custom-designed application :
3.2 Deliverables – BondStream (cont)
Upon Negotiation
0.02% or 2bps on Issuance Size (Min. fee RM 30k to Max. fee RM 300k)
Fees
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RPS service is only applicable to bonds which are rated and have maturities of more than 1 year at issuance The above are our list rates. Final pricing will be subject to discussion between the parties
Fixed Regular Amortizing Bond Irregular Amortizing Bond Callable Amortizing Bond Callable Multi Step Amortizing Multi Step Amortizing Bond Multi Step Bond Callable Multi Step Floating Rate Note Flipper / (Fixed , Float Structure) Callable/Put table Bond Convertible Bond Callable Convertible Multi- Step Callable Convertible Multi Rating Multi Tranche, etc
Hybrid Structures:
Fixed Rate / Zero Coupon Bond
Straight Bonds:
Types of Bonds
4.0 Fees and Charges
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All non-public documents provided by Issuer shall be kept private and confidential between the 2 parties.
• a) The Term Sheets / Information Memorandum of the proposed issue. • b) The Rating Rationale issued by the relevant Rating Agency. • c) The Trust Deeds in respect of the proposed issue. • d) Any other documents (e.g. special calculators ) as required.
3. For BPAM to carry out the analysis, we will need fundamental information on the proposed issue such as the following:
• a) An Appointment/Confidentiality Letter • b) Reference Pricing Service Agreement
2. We will forward you :
1. Contact our Market Development Team at 03-2772 0888 or email [email protected]
If you would like to subscribe to the BPAM Reference Pricing Service:
5.0 Subscription Procedure
Post Issuance Preliminary Study (PIPS) Bond Tracker
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I. II.
ADDITIONAL PRODUCT LINE FOR ISSUER
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Fees for PIPS : case to case basis
The traded levels were compared to ; i) the bonds’ coupon rate for cost of funding comparison and ii) its earmarked equivalent BNM Indicative yield for market trend comparison. (Subjected to the availability of BNM Indicative yields published by BNM)
PIPS provide issuer a preliminary study on their past issuance against market traded trend within one months of issuance.
1.0 Post Issuance Preliminary Study (PIPS)
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* Max 3 months data per file
Fees for Bond Tracker : RM 250 per stock code
This is a simple set of data to provide issuer an up-to-date Mark-to-Market Prices as well as the trading activity of a particular issuance on daily basis.
Bond Tracker is a standard data file which provide issuer a comparison analysis of BPAM’s MTM prices versus the traded price on a specify duration.
2.0 Bond Tracker
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No. 17-8 & 19-8, The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia Tel: +603 2772 0888 Fax: +603 2772 0808 Email : [email protected]
THANK YOU
19th June 2009
Reference Pricing Service
REDUCING YOUR FUNDING COSTS : A FORUM FOR EXISTING & POTENTIAL BOND ISSUERS
What is a Bond Pricing Agency About Us – Bond Pricing Agency Malaysia Sdn Bhd
What and Why Market Study Deliverables Fees and Charges Subscription Procedure
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
BOND TRACKER
POST ISSUANCE PRELIMINARY STUDY (PIPS)
I. II. III. IV. V.
REFERENCE PRICING SERVICE (RPS)
I. II.
BACKGROUND
CONTENTS
What is a Bond Pricing Agency About Us – Bond Pricing Agency Malaysia Sdn Bhd
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
I. II.
BACKGROUND
Current method Quotes from brokers or banks, a few via internally generated models – bias?
Increase Liquidity
Managing and Monitoring Risk
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Increase Transparency
Compliance & Audit
The BPA provides evaluated pricing on all the bonds on any given day The BPA employ reliable database and evaluation methodology. This methodology MUST be transparent and consistent
The Solution
Problem The Need Less than 1% are traded Daily valuation of bond daily, where are the prices for portfolios for NAV calculation the remaining 99%? and portfolio valuation
Why Fair Valuation?
A Bond Pricing Agency (BPA) is a market neutral entity whose role is to provide fair valuations on bonds, complying with regulations issued by the Securities Commission
1.0 What Is A Bond Pricing Agency
Improving the Soundness of Financial Institutions
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
• Providing price discovery may assist in financial institutions' compliance to international standards such as IAS 39 and Basel 2 requirements. • Effectiveness of risk management will be further enhanced as the valuation process will be consistent and not arbitrary
Promoting New Product Development
• From an origination and underwriting perspective, primary level pricing becomes challenging especially for lower credits • Mark-to-market pricing on previously issued corporate bonds can promote new corporate bond issues by functioning as benchmarks for primary level pricing
• BPA valuation approved by the SC may revitalize the bond market using markto-market prices as benchmark by publicly announcing them • Marking-to-market system provide strategy alternatives to traditional hold-tomaturity strategies.
• BPA’s transparency in the methodologies being used will spur the evolution of the bond market with further advance pricing methodologies • When advance pricing methodologies are established, it will encourage more bond offerings and more active trading of these products in the secondary market.
Revitalizing the Primary Market for Bonds
Revitalizing the Secondary Market for Bonds
1.1 What Is A Bond Pricing Agency
• Evaluated and approved by regulators • FRS 132 on valuation technique
Works under regulatory guidelines
• Is not a pro-active model to pre-empt prices • Is a passive reactive model to market conditions
Is Not a Predictive Valuation Model
• An accounting device to capture market value • Act as a reference only
An Accounting Device
• Mark-to-market using fair valuation approach does not set the definitive market price
Not the Definitive Market Price
Fair valuation is the act of using recent arm’s length market transactions and relative comparison with peers and benchmarks in deriving an instrument’s estimated current price.
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
•
Defining fair valuation :
1.2 Introducing The Bond Pricing Agency Concept
Professional indemnity insurance RM 10 million
System Adequate security and backup
Pricing performance 3 month market acceptance test
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Shareholders No controlling party
Methodology and Process Audited
Minimum paid up capital RM 10 million
Expertise Fit and proper persons
Bond Pricing Agency Malaysia has met and exceeded these requirements, and was appointed as the first registered Bond Pricing Agency on 18th April 2006
1.3 Bond Pricing Regulations
January 3: Guidance Note 15 on Mandatory use of BPA prices by unit trust companies Sept 15: Bondweb Malaysia is now known as Bond Pricing Agency Malaysia Sdn Bhd
April 18: Appointed Malaysia’s first Bond Pricing Agency
March: Website launched July: BondStream pilot launched Sept: Full marked-to-market process Oct: Commercial deployment of BondStream
Sept: Bondweb Malaysia Sdn Bhd established
“Funds investing in Ringgit-denominated bonds shall value bond portfolios on daily basis using fair value prices quoted by a Bond Pricing Agency (BPA) registered with the SC.”
The Securities Commission issued Guidance Note 15 dated 15 December 2006 pursuant to the Guidelines on Unit Trusts Funds, which outlined the policy for Unit Trusts on use of BPA prices:
With participation from: Rating Agencies on data and technical support Regulators in observer and advisory role Market community (buy/sell side, brokers) via “Bottom Up” approach
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Status as of now > 90 clients (banks, AMC, UTMC, insurance companies, corporate, quasi governments)
2008
2007
2006
2005
2004
2001 - 2004
Began groundwork in Malaysia Discussions with SC and BNM Market study and research
Bond Pricing Agency Malaysia (BPAM) was incorporated in 2004.
2.0 Bond Pricing Agency Malaysia Sdn Bhd
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2.1 BPA Malaysia’s Clients
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2.2 BPA Malaysia’s Clients (cont)
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
9)Customized Data Delivery
8)RBC Support Pack
7)Basel II Support Pack
6)Bond Index
5)Bond Tracker
4)Post Issuance Preliminary Study (PIPS)
3)Reference Pricing Service
2)Bond Information - Primary Market Data - Secondary Market Data
1)Fair Valuation - Daily MTM prices/yields
Optimised to the needs of market participants
2.3 BPA Malaysia’s Product Lines
What and Why Market Study Deliverables Fees and Charges Subscription Procedures Additional Product Line for Issuer
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
I. II. III. IV. V. VI.
REFERENCE PRICING SERVICE (RPS)
The RPS service from BPAM allows issuers to obtain an independent, unbiased report on reference yield levels. This data will provide them with the information required to make evaluated, informed decisions regarding the pricing of their bond issue.
• Issuers receive updates on market rates from arranging banks. However, there is potentially a conflict of interest and the banks may not have the economic incentive to quote fair rates.
• Many issuers are dependent on their arranging banks for rates, thus find it difficult to make an informed decision regarding financing costs.
• Greater price transparency where issuers are fully aware of market levels with full information
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Current Method
Dystopia
Utopia
The Need
• A more efficient price discovery process for issuers in order to minimize their borrowing costs.
1.0 What is Reference Pricing Service?
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
To provide you the necessary information when negotiating the final rates with the buyers and arrangers of the issue.
To indicate the fair price for the proposed bond issue based on the current interest rate and economic environment
1.1 Why Do You Need It ?
REFERENCE PRICING SERVICE Reduce Your Borrowing Costs
• The entire issue is taken up by the Lead Arranger
Bought Deal • Source for quotes in terms of pricing and amount from selected potential investors.
Book Building
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
• Targeted institutional investors • Pricing is based on negotiation
Private Placement
1.2 Methods of Issuance
• Is open to all FAST members. • All investors can submit their bids via FAST members.
Competitive Tender
3 Years
826
840bp
Highest Deviation from Curve (bp)
11%
8%
11%
AA3
Highest Deviation from Curve (class)
Above 100bp
81-100bp
61-80bp
41-60bp
21-40bp
1-20bp
This implies that the bonds were issued at heavy discount as the Class Curves represents the market average rate for the particular credit quality
Majority of new bonds issued had coupon levels above 100bp of the BNM Consolidated Class Curves on the day of issuance
Coupon To BNM Class Curves Observation On Day Of Issuance
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Highest Deviation from Curve (tenure)
12%
Number of Matched Issuances to Curve
46%
12%
Coupon to BNM Curve Spreads for AAA-A On Day Of Issuance Between June 2005- Mar 2009
We conducted a market study over a few credit classes (AAA to A bonds). Our studies have shown that price discrepancies between the cost of funding (assumed to be coupon level) to market levels in the secondary market are very high
2.0 Market Study on Credit Classes – AAA to A
19%
50%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
5%
5%
6%
15%
1-20bp
Coupon Level to Traded Level Spread for AAA Transactions Between 2003-2008
– Coupon Level Vs Traded Level
50% of the AAA rated new issuance had coupon level above 20 bps of the Traded yield after issuance.
Coupon To Traded Level Observation
A Study on AAA Credit Class within 1 Month from Issuance
2.1 Market Study on Credit Classes – AAA rated
17%
6%
15%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
10%
33%
19%
1-20bp
Coupon Level to BNM Curve Spread for AAA Transactions Between 2003-2008
- Coupon Level Vs BNM Curve
81% of the AAA rated new issuance had coupon level above 20 bps of the BNM consolidated Class Curve after issuance
Coupon To BNM Curves Observation
A Study on AAA Credit Class within 1 Month from Issuance
2.2 Market Study on Credit Classes – AAA rated(cont)
7%
5%
14%
36%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
1-20bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
4%
34%
Coupon to Traded Level Spread for AA Transactions Between 2003-2008
– Coupon Level Vs Traded Level
64% of the AA rated new issuance had coupon level above 20 bps of the Traded yield after issuance.
Coupon To Traded Level Observation
A Study on AA Credit Class within 1 Month from Issuance
2.3 Market Study on Credit Classes – AA rated
14%
10%
11%
11%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
39%
15%
1-20bp
Coupon to BNM Curve Spread for AA Transactions Between 2003-2008
– Coupon Level Vs BNM Curve
85% of the AA rated new issuance had coupon level above 20 bps of the BNM consolidated Class Curve after issuance
Coupon To BNM Curves Observation
A Study on AA Credit Class within 1 Month from Issuance
2.4 Market Study on Credit Classes – AA rated (cont)
18%
10%
29%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
1-20bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
19%
10%
14%
Coupon to Traded Level Spread for A Transactions Between 2003-2008
– Coupon Level Vs Traded Level
71% of the A rated new issuance had coupon level above 20 bps of the Traded yield after issuance.
Coupon To Traded Level Observation
A Study on A Credit Class within 1 Month from Issuance
2.5 Market Study on Credit Classes – A rated
14%
8%
12%
11%
Above 100bp
81-100bp
60-80bp
40-60bp
21-40bp
1-20bp
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
50%
5%
Coupon to BNM Curve Spread for A Transactions Between 2003-2008
– Coupon Level Vs BNM Curve
50% of the A rated new issuance had coupon level above 100 bps of the BNM consolidated Class Curve after issuance
Coupon To BNM Curves Observation
A Study on A Credit Class within 1 Month from Issuance
2.6 Market Study on Credit Classes – A rated (cont)
26-Jun-02
24-Jun-02
22-Jun-02
20-Jun-02
18-Jun-02
16-Jun-02
14-Jun-02
12-Jun-02
10-Jun-02
08-Jun-02
06-Jun-02
04-Jun-02
Monetary Loss from coupon at last curve = [BNM indicative rate% - Coupon Level%] x Issue Amt
Monetary Loss from coupon at last trade = [Traded Yield% – Coupon Level%] x Issue Amt
28-Jun-02
4.4
4.6
4.8
5.0
5.2
5.4
Cost of Capital
Actual Market Cost
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
4.4
04-Jun-02
5.6
Case Study 2002- AAA Bond from a Road and Toll Concessionaire
06-Jun-02
BNM CURVE
08-Jun-02
4.6
10-Jun-02
4.8
12-Jun-02
Traded Yield
14-Jun-02
5.0
16-Jun-02
5.2
18-Jun-02
Coupon Rate
22-Jun-02
5.4
24-Jun-02
5.6
Actual Market Cost
Cost of Capital
Coupon Level 5.40% . Within one month after issue, the traded yield has descended quickly to 4.74% Issue Amount = RM 550 million Monetary Loss from coupon at last trade = RM 3,657,500 % of Monetary Loss = 0.67%
20-Jun-02
Case Study 2002 - AAA Bond from a Road and Toll Concessionaire
Traded Yield Level
We note that traded levels in the secondary market drop tremendously.
We also studied the traded levels after the issue date in the Secondary Market.
26-Jun-02
Traded Yield Level
2.7 One Month After Issuance - AAA Rated
28-Jun-02
26-Jun-02
24-Jun-02
22-Jun-02
20-Jun-02
18-Jun-02
16-Jun-02
Traded Yield Level
Credit Cost (BNM Curve)
Cost of Capital Credit Cost
Cost of Capital
BNM CURVE
Traded Yield
Coupon Rate
Monetary Loss from coupon at last trade = RM 3,657,500 % of Monetary Loss = 0.67%
Monetary loss from coupon at last curve = RM 4,257,000 % of Monetary Loss = 0.77%
BNM last Curve at 4.63% Coupon Rate at 5.40% Last Trade Yield at 4.74% Issue Amount = RM 550 million
Credit environment as reflected in the BNM Consolidated Indicative Yield was stable throughout 1 month after the issue date on Bond AAA
Comparison Between Coupon Rate, Traded Yield and BNM Indicative Curve
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
4.4
4.6
4.8
5.0
06-Jun-02
06-Jun-02
5.2
08-Jun-02
08-Jun-02
5.4
28-Jun-02
Case Study - AAA Bond from a Road and Toll Concessionaire
10-Jun-02
10-Jun-02
5.6
12-Jun-02
12-Jun-02
Traded Yield Level
14-Jun-02 14-Jun-02
4.4
16-Jun-02
4.6
18-Jun-02
4.8
20-Jun-02
5.0
22-Jun-02
5.2
24-Jun-02
5.4
04-Jun-02
Case Study 2002 - AAA Bond from a Road and Toll Concessionaire
26-Jun-02
5.6
04-Jun-02
2.8 One Month After Issuance - AAA Rated (cont)
28-Jun-02
30-May May-07
28-May May-07
26-May May-07
24-May May-07
22-May May-07
20-May May-07
18-May May-07
16-May May-07
14-May May-07
12-May May-07
10-May May-07
08-May May-07
06-May May-07
04-May May-07
02-May May-07
30-Apr Apr-07
4.5
4.7
4.9
5.1
5.3
30-Apr-07
Traded Yield Level
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Monetary Loss from coupon at last curve = [BNM indicative rate% - Coupon Level%] x Issue Amt
Monetary Loss from coupon at last trade = [Traded Yield% – Coupon Level%] x Issue Amt
5.5
5.7
5.9
6.1
6.3
Actual Market Cost
Cost of Capital
Case Study 2007 - AA Bond from a Utility Corporate
02-May-07
6.5
04-May-07
4.5
BNM CURVE
06-May-07
4.7
08-May-07
4.9
10-May-07
5.1
12-May-07
5.3
14-May-07
Traded Yield
16-May-07
5.5
18-May-07
5.7
20-May-07
5.9
22-May-07
Coupon Rate
24-May-07
6.1
26-May-07
6.3
Actual Market Cost
Cost of Capital
Coupon Level 6.38% Within one month after issue, the traded yield has descended quickly to 5.20% Issue Amount = RM 700 million Monetary Loss from coupon at last trade = RM 8,271,900 % of Monetary Loss = 1.18%
28-May-07
6.5
Traded Yield Level
2.9 One Month After Issuance - AA Rated
30-May-07
02-May-07
02-May-07
30-Apr-07
30-Apr-07
Traded Yield Level
BNM CURVE
Traded Yield
Coupon Rate
Credit Cost (BNM Curve)
Cost of Capital Credit Cost
Cost of Capital
Monetary Loss from coupon at last trade = RM 8,271,900 % of Monetary Loss = 1.18%
Monetary loss from coupon at last curve = RM 4,257,000 % of Monetary Loss = 0.77%
BNM last Curve at 5.24% Coupon Rate at 6.38% Last Trade Yield at 5.20% Issue Amount = RM 700 million
Comparison Between Coupon Rate, Traded Yield and BNM Indicative Curve
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
4.5
4.7
4.9
5.1
5.3
5.5
5.7
5.9
6.1
6.3
20-May-07
Case Study 2007 - AA Bond from a Utility Corporate
04-May-07
04-May-07
6.5
06-May-07
06-May-07
4.5
08-May-07
08-May-07
4.7
10-May-07
10-May-07
4.9
12-May-07 12-May-07
5.1
14-May-07 14-May-07
5.3
16-May-07 16-May-07
5.5
22-May-07 20-May-07
5.7
24-May-07 22-May-07
5.9
26-May-07 24-May-07
6.1
28-May-07 26-May-07
6.3
28-May-07
6.5
18-May-07 18-May-07
Traded Yield Level
30-May-07
2.10 One Month After Issuance - AA Rated (cont)
30-May-07
30-May May-03
28-May May-03
26-May May-03
24-May May-03
22-May May-03
20-May May-03
18-May May-03
16-May May-03
14-May May-03
12-May May-03
10-May May-03
08-May May-03
06-May May-03
04-May May-03
02-May May-03
30-Apr Apr-03
6.0
6.5
30-Apr-03
Traded Yield Level
Cost of Capital
Actual Market Cost
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Monetary Loss from coupon at last curve = [BNM indicative rate% - Coupon Level%] x Issue Amt
Monetary Loss from coupon at last trade = [Traded Yield% – Coupon Level%] x Issue Amt
02-May-03
7.0
04-May-03
7.5
06-May-03
8.0
Case Study 2003 - A Bank Sub-debt
08-May-03
8.5
10-May-03
6.0
12-May-03
BNM CURVE
14-May-03
6.5
16-May-03
7.0
18-May-03
Traded Yield
20-May-03
7.5
22-May-03
Coupon Rate
24-May-03
8.0
Actual Market Cost
Cost of Capital
Coupon Level 7.95% Within one month after issue, the traded yield has descended quickly to 6.69% Issue Amount = RM 200 million Monetary Loss from coupon to last trade = RM 2,516,800 % of Monetary Loss = 1.26%
26-May-03
8.5
28-May-03
Case Study 2003 - A Bank Sub-debt
Traded Yield Level
2.11 One Month After Issuance - A Rated
30-May-03
24-May-03
04-May-03
30-Apr-03
30-Apr-03
Traded Yield Level
Credit Cost (BNM Curve)
Cost of Capital Credit Cost
Cost of Capital
BNM CURVE
Traded Yield
Coupon Rate
Monetary Loss from coupon at last trade = RM 2,516,800 % of Monetary Loss = 1.26%
Monetary loss from coupon at last curve = RM 3,070,000 % of Monetary Loss = 1.45%
BNM last Curve at 6.42% Coupon Rate at 7.95% Last Trade Yield at 6.69% Issue Amount = RM 200 million
This clearly is not reflective of market reality.
However, traded yield levels were on a descending trend in the same timeframe eventhough the BNM curve was stable throughout 1 month after issuance date.
Comparison Between Coupon Rate, Traded Yield and BNM Indicative Curve
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
6.0
6.5
06-May-03
06-May-03
7.0
08-May-03
08-May-03
7.5
10-May-03
10-May-03
8.0
26-May-03
Case Study 2003 - A Bank Sub-debt
12-May-03
12-May-03
8.5
14-May-03 14-May-03
6.0 16-May-03 16-May-03
6.5
18-May-03 18-May-03
7.0
20-May-03 20-May-03
7.5
24-May-03
8.0
22-May-03 22-May-03
Traded Yield Level
28-May-03 26-May-03
8.5
02-May-03
02-May-03
Case Study 2003 - A Bank Sub-debt
30-May-03 28-May-03
04-May-03
2.12 One Month After Issuance - A Rated (cont)
30-May-03
05-Sep02
01-Sep02
28-Aug02
22-Aug02
7-year AAA Bond From Property Corporate
11-Sep02
18-Aug02
7 Yr BNM AAA Indicative Level
Traded Yield
Coupon Rate
3 Yr BNM AAA Indicative Level
Traded Yield
Coupon Rate
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
4.0
4.2
4.4
4.6
4.8
5.0
5.2
5.4
3.5
20-Aug02
24-Apr03
3.6
24-Aug02
26-Apr03
3.7
26-Aug02 28-Apr03
3.8
30-Aug02 30-Apr03
3.9
03-Sep02
02May-03
4.0
Case Study - 3-year AAA Bond from Property Corporate
07-Sep02
04May-03
16-Aug02
22-Apr03
09-Sep02 06May-03
Rate (%)
Rate (%)
7yr AAA : Coupon Rate – Traded Yield = - 97 bps
3yr AAA : Coupon Rate – Traded Yield = -35 bps
The coupon level were set much higher than the BNM indicative AAA curve.
Assuming Funding Cost = Coupon Rate, the discrepancies in yield were observed immediately after issuance.
ii.) its earmarked equivalent 3 Yr and 7Yr BNM AAA Indicative yield level.
i.) The bond’s coupon rate for cost of funding comparison and
The graphs illustrate the Trade Trend for the AAA bond 1 month after issuance, where the traded level were compared to
2.13 Case Study 1 – Past Issuance without RPS
13-Sep02 08May-03
4.5
4.6
4.7
4.8
4.9
5.0
5.1
5.2
10-year AAA Bond From Property Corporate
24-Apr09
4.0
26-Apr09
4.1
28-Apr09
4.1
30-Apr09
4.2
02-May09
4.2
04-May09
4.3
06-May09
4.3
08-May09
4.4
10-May09
4.4
12-May09
10 Yr BNM AAA Indicative Level
Traded Yield
Coupon Rate
5 Yr BNM AAA Indicativ e Level
Traded Yield
Coupon Rate
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Rate (%)
5-year AAA Bond From Property Corporate
14-May09
4.5
16-May09
Rate (%)
* Last trade refers to last trade occurred within one month from issuance
RPS managed to narrow the borrowing spread by matching the Actual Market Cost (traded yield) and the Issuer Cost which is the coupon rate.
10yr AAA : Coupon Rate – Traded Yield = - 4 bps
5yr AAA : Coupon Rate – Traded Yield = +1 bps
Using the information provided by the RPS report , the issuer was able to close the pricing gap. The bond traded very closely at its par level.
2.14 Case Study 1 – Post Issuance with RPS (cont)
22-Apr09
22-Apr09 24-Apr09 26-Apr09 28-Apr09 30-Apr09 02-May09 04-May09 06-May09 08-May09 10-May09 12-May09 14-May09 16-May09 18-May09 20-May09 22-May09 18-May09
YIELD MOVEMENT IN BNM INDICATIVE AAA CURVE BETWEEN ISSUE DATE AND ONE MONTH AFTER (bp) BOND NAME
3.82%
Percentage of Monetary Loss %
-4
300,000
(60,000)
MARKET VALUE DIFFERENCE (RM)
Percentage of Monetary Loss %
Total Issuance Size (RM)
Monetary loss from coupon at last point: (RM)
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
500,000,000
-16
Total Issuance Size (RM)
16,796,000
10-year AAA Bond From Property Corporate
1
SPREAD BETWEEN TRADE LEVEL TO COUPON (bp)
After RPS
Conclusion : 5-year AAA Bond From RPS does help 2,304,000 -15 Property reduce this borrowing spread Corporate at the primary level.
MARKET VALUE DIFFERENCE (RM)
19,100,000
-97
-35
SPREAD BETWEEN TRADE LEVEL TO COUPON (bp)
Monetary loss from coupon at last point : (RM)
7-year AAA Bond From Property Corporate
3-year AAA Bond From Property Corporate
BOND NAME
Before RPS
2.15 Case Study 1 – Before and After RPS (cont)
0.12%
200,000,000
240,000
11
9
YIELD MOVEMENT IN BNM INDICATIVE AAA CURVE BETWEEN ISSUE DATE AND ONE MONTH AFTER (bp)
28-Jan-08
28-Jan-08
15-Jan-08
22-Jan-08
25-Jan-08
25-Jan-08
Company A, Telco IMTN 5.55% 27.12.2013 - MTN No. 2
Company A, Telco IMTN 5.65% 26.12.2014 - MTN No. 3
Company A, Telco IMTN 5.75% 28.12.2015 - MTN No. 4
Company A, Telco IMTN 5.90% 28.12.2016 - MTN No. 5
Company A, Telco IMTN 6.10% 28.12.2017 - MTN No. 6
Company A, Telco IMTN 7.10% 28.12.2022 - MTN No. 8
7.00
6.03
5.80
5.60
5.50
5.30
5.20
Last Trade Yield (%) *
RM 10.92
RM 9.18
RM 12.24
RM 14.73
RM 17.40
RM 24.13
RM 3.84
Nominal Loss At Last Trade Yield (mil)
* Last trade refers to last trade occurred within one month from issuance
Total loss from nominal amount with the last set of trades amounted to RM 92.44 Million
Seven were traded within the month from issuance with turnover volume of 699 Million
Total Loss From Nominal Amount With Last Trade Transaction Within A Month Example
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
18-Jan-08
Last Trade Date *
Company A, Telco IMTN 5.35% 28.12.2012 - MTN No. 1
Bond Name
Company A, Telco issued 8 senior Islamic MTN on 28-Dec-2007
2.16 Case Study 2 – Post Issuance with RPS
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Upon Request
10 Business Days
After the issuance date is fixed, BPAM will provide the Final Reference Pricing Update upon notification by the issuer
BPAM will deliver the Reference Pricing Rationale after receiving the complete set of documentation
Issuer submits the relevant documentation to BPAM
Signing of Appointment Letter / Agreement for the RPS
3.0 Deliverables
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
This will allow you to have one-stop, real-time access to yield levels and secondary market information at any given time.
For the duration of the RPS service till issuance of the notes, BPAM would provide a complimentary User ID to access BPAM’s bond database via the BondStream software or website.
BPAM will also follow up with a final Reference Pricing Update. This will allow you to have access to the latest market pricing data prior to issue. BPAM will generate this on your notification.
Market Assessment Credit Assessment Yield Assessment Our view on the FAIR ISSUANCE YIELD
In the report we provide analyses which cover the following topics:
The Reference Pricing Rationale shall be delivered to you in the form of hardcopy report within a maximum of ten (10) business days after a complete set of documentation is received.
3.1 Deliverables (cont)
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
3.2 Deliverables – RPS Report Sample (cont)
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
3.3 Deliverables – RPS Report Sample (cont)
Real-time Quotes Daily trading activity Historical trades back to 2000 Trade map Market depth
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• •
• • •
Trading Data
• Real-time quote charts • Daily charts • Yield curves • Technical analysis tools
Charting
• Bond Analysis Tools • Bond Calculator • W.I Simulator • Favourite bonds • Bond Advanced Search • Bond Trade search • Custom Report generator
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• Indicative Money Market rates • Research and commentaries • Real time news
• • • • • • •
Stock Info Facility Info Rating Info Bond Statistics Statistics database Corporate info database Islamic bond data
Market Data
Bond Database
Our custom-designed application :
3.2 Deliverables – BondStream (cont)
Upon Negotiation
0.02% or 2bps on Issuance Size (Min. fee RM 30k to Max. fee RM 300k)
Fees
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
RPS service is only applicable to bonds which are rated and have maturities of more than 1 year at issuance The above are our list rates. Final pricing will be subject to discussion between the parties
Fixed Regular Amortizing Bond Irregular Amortizing Bond Callable Amortizing Bond Callable Multi Step Amortizing Multi Step Amortizing Bond Multi Step Bond Callable Multi Step Floating Rate Note Flipper / (Fixed , Float Structure) Callable/Put table Bond Convertible Bond Callable Convertible Multi- Step Callable Convertible Multi Rating Multi Tranche, etc
Hybrid Structures:
Fixed Rate / Zero Coupon Bond
Straight Bonds:
Types of Bonds
4.0 Fees and Charges
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
All non-public documents provided by Issuer shall be kept private and confidential between the 2 parties.
• a) The Term Sheets / Information Memorandum of the proposed issue. • b) The Rating Rationale issued by the relevant Rating Agency. • c) The Trust Deeds in respect of the proposed issue. • d) Any other documents (e.g. special calculators ) as required.
3. For BPAM to carry out the analysis, we will need fundamental information on the proposed issue such as the following:
• a) An Appointment/Confidentiality Letter • b) Reference Pricing Service Agreement
2. We will forward you :
1. Contact our Market Development Team at 03-2772 0888 or email [email protected]
If you would like to subscribe to the BPAM Reference Pricing Service:
5.0 Subscription Procedure
Post Issuance Preliminary Study (PIPS) Bond Tracker
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
I. II.
ADDITIONAL PRODUCT LINE FOR ISSUER
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
Fees for PIPS : case to case basis
The traded levels were compared to ; i) the bonds’ coupon rate for cost of funding comparison and ii) its earmarked equivalent BNM Indicative yield for market trend comparison. (Subjected to the availability of BNM Indicative yields published by BNM)
PIPS provide issuer a preliminary study on their past issuance against market traded trend within one months of issuance.
1.0 Post Issuance Preliminary Study (PIPS)
©Copyright BOND PRICING AGENCY MALAYSIA SDN.BHD (FORMERLY BONDWEB MALAYSIA SDN BHD). - All rights reserved.
* Max 3 months data per file
Fees for Bond Tracker : RM 250 per stock code
This is a simple set of data to provide issuer an up-to-date Mark-to-Market Prices as well as the trading activity of a particular issuance on daily basis.
Bond Tracker is a standard data file which provide issuer a comparison analysis of BPAM’s MTM prices versus the traded price on a specify duration.
2.0 Bond Tracker
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No. 17-8 & 19-8, The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia Tel: +603 2772 0888 Fax: +603 2772 0808 Email : [email protected]
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