Islamic bonds are similar to conventional bonds in Malaysia. It always has fix term maturity, can bear a coupon, and trades on the normal yield price relationship. Islamic bonds traded actively in the market by both the conventional and Islamic players.
Islamic bonds are similar to conventional bonds in Malaysia. It always has fix term maturity, can bear a coupon, and trades on the normal yield price relationship. Islamic bonds traded actively in the market by both the conventional and Islamic players.
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Islamic bonds are similar to conventional bonds in Malaysia. It always has fix term maturity, can bear a coupon, and trades on the normal yield price relationship. Islamic bonds traded actively in the market by both the conventional and Islamic players.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online from Scribd
1. What is the difference between IsIamic bonds and conventionaI bonds?
2. Is there any difference in term of investors' protection against defauIt? 3. Is there any Iiquidity premium in hoIding IsIamic bonds? 4. What are the IsIamic bonds avaiIabIe in MaIaysia? 5. What are the principIes used for issuance of IsIamic bonds? 1. What is the difference between IsIamic bonds and conventionaI bonds? Back to Top slamic bonds are similar to conventional bonds in Malaysia. t always has fix term maturity, can bear a coupon, and trades on the normal yield price relationship (see attached appendix on calculation method). For conventional investors, the structuring of the bonds by the issuer is immaterial. The difference lies only in the way the issuer structure the bonds.
An slamic bonds is structured such that the issuance is not an exchange of paper for money consideration with the imposition of an interest as per conventional. t is based on an exchange of approved asset for some financial consideration that allow the investors to earn profits from the transactions. Approval of the assets and the contract of exchange would be based on Syariah (slamic law) principles , which is necessary to meet the slamic requirement.
The various type of slamic-based structures used for the creation of slamic bonds are sale and purchase of an asset based on deferred payment, leasing of specific assets or participation in joint-venture businesses. 2. Is there any difference in term of investors' protection against defauIt? Back to Top The slamic bonds share the same criteria as the conventional bond in the matters of non-payment/late payment of the profit portion and the principal amount. 3. Is there any Iiquidity premium in hoIding IsIamic bonds? Back to Top slamic bonds traded actively in the market by both the conventional and slamic players. The system of Principal Dealership applies to the government issued bonds; there are currently 10 principle dealers for slamic bonds, the same parties as those for conventional government bonds. The principle dealers are obliged to make market for Government slamic instruments by quoting 2 way prices, and in addition, respective lead arrangers will make the market for the slamic private debt securities.
The slamic bond market in Malaysia has seen outstanding growth, and has established itself as a viable alternative investment for both slamic and conventional investors. Charts and data non the outstanding amount of the various slamic bonds in Malaysia is attached in Appendix .
4. What are the IsIamic bonds avaiIabIe in MaIaysia? Back to Top There are three types of slamic bonds issuers a. Government Government nvestment ssues (G) - ssued by the Government of Malaysia - Governed by the Government nvestment Act 1983; provides the power for the government to borrow via slamic principle for its general financing. - Currently only zero coupon bonds issued - Syariah principle: debt based (securitisation of government assets, but not a direct claim of assets as in an Asset-backed securities) - Total outstanding balance as at end of 2003 is RM7b, up to a limit of RM15b imposed by the Act. - Tradable since June 2001. - ssued on a pre-announced calendar. b. Quasi Government Khazanah Benchmark Bond - Khazanah Benchmark Bond was issued by Khazanah Nasional Berhad (fully owned by the government) - ssued mainly for long-term financing purposes - Zero coupon - Syariah principle: debt based - Total outstanding balance as at end of 2003 is RM10b (maximum limit) c. Corporate bonds - Known as slamic Private Debt Securities(PDS) - ssued by big corporations in Malaysia - Minimum period of 3 years and maximum of 20 years - Approval from Securities Commission and Central Bank required 5. What are the principIes used for issuance of IsIamic bonds? Back to Top Currently, there are 3 structures, a. Debt based - This is the most commonly structured slamic bond in Malaysia and can be issued based on fixed or zero rate coupon - Malaysian G and Khazanah bonds are based on this principles - Process: ) issuer identified assets, ii) slamic banking institution then purchased these assets on competitive tender basis under slamic principles, proceed paid to the issuer, iii) immediately re-sell the assets to the issuer at the selling price and at the same time issuer will issue bonds. - Traded in the secondary market via the concept of debt trading. b. Asset based - Securities that evidences ownership in income generating assets - Such assets are normally structured to be owned by special Purpose Vehicle (SPV) which in turn act as lessors and issuer as the lessee - Holders will benefit from the cashflow generated through the lease - This structure allows for both fixed and floating rate
c. Equity based - A bond that represents common ownership and entitles the holders shares in a specific project - Shares of profit are determined beforehand by a definite proportion of the total bond amount - Although it is similar to shares, it has a fixed maturity which is determined by the tenure or project completion date - This structure normally bears a floating rate
Comparison between of slamic and Conventional Bonds: Items IsIamic ConventionaI ssuance process Must be approved by Syariah scholars and Securities Commission Must be approved by Securities Commission only Structure types Asset, equity and debt based Debt based only ssuers Government, semi- Government and private sectors Government, semi- Government and private sectors nvestors Both conventional and slamic investors Only conventional investors