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Maritime
Wednesday July 8, 2009
Firms looking to bank loansfor financing
By YEOW POOI LING
RAM Rating CEO: This is due to relatively cheaper rates and speedto market
PETALING JAYA: Many businesses are looking to bank loans for financing given the relatively cheaper rates and the speed to market, saysRAM Rating Services Bhd chief executive officer Liza Mohd Noor.Such trend was not new as similar practices were seen in the previousdownturn, she told
StarBiz 
in an email, adding that the corporate bondmarket was unlikely to bounce back to pre-crisis level anytime soon.OCBC Bank (M) Bhd director and chief executive Jeffrey Chew said thebonds and loans markets were complementary to meet the different needsof companies, government entities, financial institutions and project-basedentities.“The bonds market will be tapped mainly for long-term fixed-rate fundingand the loans market for working capital, trade financing and other mid-term requirements,” he said.Bond Pricing Agency Malaysia chief executive officer Meor Amri Meor Ayob said from the cost perspective, bank loans were deemed cheaper.“When we talk about financing of like RM100mil, the crucial factor is costbecause a 10 basis points savings would translate into RM100,000.Given shareholders’ interest, any savings would count,” he said, addingthat banks’ capital base was larger compared with a decade ago.Liza said the issuance of conventional bonds and sukuk had slowedsubstantially amid subdued economic activity, investors’ wariness andpricing hurdles.As at end-June, RAM had published the ratings of nine corporate bondswith a prospective issuance value of RM22bil, of which only RM6.8bilwere issued.“Nevertheless, the small number of bond issuances is in no way anindication of lack of interest in the bond market or lack of funding
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Firms looking to bank loans for financinghttp://biz.thestar.com.my/news/story.asp?file=/2009/7/8/business/4252...1 of 310/9/2009 9:42 AM
 
requirements by corporates since we have almost RM60bil worth of ratedbonds awaiting issuance,” Liza added.Meor said while the cost of financing from the bond market might seem“slightly more expensive” at present levels, it came with a certainty of rates.“Banking rates are linked to overnight policy rates, which may change asthe economy recovers. It depends on whether the companies have anoutlook of five-, 10- or 15-year, and so forth,” he said. There are someRM111.8bil worth of bonds, including government issuance, maturing inthe next 10 months.“Corporates without guarantees amounted to RM20.7bil and corporateswith guarantee RM2.1bil, bringing the total to RM22.8bil maturing by April2010. These companies have a choice of redeeming the bonds either byown cashflow or refinancing,” Meor said.Chew said pricing, certainty of funding and time-to-market were some of the key considerations in choosing the type of financing.The loans market, relative to the bonds, offers a greater level of certaintyin terms of demand and pricing.“Besides the cost of funds, banks would price their loans based on thecredit standing of the specific borrower using their own internal pricingmodel,” he said.Certainty and time-to-market would be more predictable as the financingarrangements were not subject to regulatory approvals and typicallyarranged on a bilateral basis or syndicated among a consortium of banksfor larger financing needs, he added.Liza said the bond market would remain an essential platform for fund-raising. “The outlook of the Malaysian bond market is of continuedgrowth,” she said, adding that near-term interest was on bonds backed bythe Government or insured by Danajamin.“The market’s persistent risk aversion behaviour indicates that‘guarantee’, or triple-A rating, will remain the theme of the domestic bondmarket,” she said.With interest rates at historical lows and expectations of stabilisingeconomies in the coming months, investors may start looking for “yields”instead of “safety.”This could start to re-establish market interests in a broader range of credits, Liza added.Meanwhile, a source from a listed company said applying for bank loanswas not as easy as it seemed based on the company’s experience earlier this year.“After assuring us for months that there would be no significant issues inoffering us the term loan facility, the bank, which is one of the biggest inthe country, at the last minute inserted a new term in the offer letter,” thesource said.The extra condition involved placing fixed deposits equivalent to theamount of the facility outstanding for the whole loan period, on top of acharge for the property that the loan was supposed to finance.“It is effectively asking us to give the bank the money to lend to us. Hadwe not had the internal financial resources to pay for the purchase, itwould have been a financial disaster to us,” he said.Sourcing from the bonds market, meanwhile, is not economically viable for small amounts. “Private debt securities give companies an alternative andwhile there is less compliance requirements, the repayment terms andinterests charges are usually fixed and non-negotiable,” he added.
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Firms looking to bank loans for financinghttp://biz.thestar.com.my/news/story.asp?file=/2009/7/8/business/4252...2 of 310/9/2009 9:42 AM
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