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Reference Pricing Service (RPS)

Helping Bond Issuers get the best deal!

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CONTENTS

BACKGROUND

I. About Us – Bondweb Malaysia Sdn Bhd


II. What is a Bond Pricing Agency

REFERENCE PRICING SERVICE (RPS)

I. What and Why


II. Market Study
III. Deliverables
IV. Fees and Charges
V. Subscription Procedure

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BACKGROUND

I. About Us – Bondweb Malaysia Sdn Bhd


II. What is a Bond Pricing Agency

©Copyright BONDWEB MALAYSIA SDN.BHD. - All rights reserved.


1.0 About Us – Bondweb Malaysia
Bondweb Malaysia (BWM) was incorporated in September 2004. We are now the only Bond
Pricing Agency (BPA) for the Malaysian market.
Under the purview of the Securities Commission
• Appointed as a BPA by the Securities Commission on April 18, 2006
• Met and exceeded the requirements as outlined in the Guidelines on the Registration of Bond Pricing Agencies

Fair valuation for the Ringgit bond market


• Provides independent daily valuations for approximately 2000 MYR fixed income securities
• A one-stop comprehensive bond information service provider
An emphasis on market relevant pricing
• Alliances with local business partners Securities FirmCorporate Firms
ensure speedier capturing of price 3% Others
6%
discovery than any available source. Insurance 3%
6% Unit Trust
• Help facilitate finer price discovery hence 37%
spurring trading activity that enhances Government Linked
risk management and optimises capital Companies
allocation 6%

• Bondweb user demographics includes


Banks, Unit Trust and Asset Managers,
Insurers, Government Agencies and Financial Institutions Asset Managers
Corporations 30% 9%

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1.1 About Us – Bondweb Malaysia (Cont’d)
BWM was established in 2004
With participation from:
2001 Began groundwork in Malaysia
Discussions with SC and BNM
 RAM & MARC on data and technical support
-
Market study and research  SC and BNM in observer and advisory role
2004  Market community (buy/sell side, brokers) via
Sept: Bondweb Malaysia Sdn Bhd “Bottom Up” approach
established
2004

March: BWM website launched


July: Bondstream pilot launch Adhered to strict SC requirements to qualify as BPA:
Sept: Full marked-to-market process  Audited methodology and process
2005
Oct: Commercial deployment of
Bondstream  Three months market acceptance test
 RM10 million minimum paid up capital and
April 18: Appointed Malaysia’s first Bond professional indemnity insurance
Pricing Agency
2006  No controlling shareholders
January 3 : Guidance Note 15 on Mandatory
use of BPA prices by unit trust
2007 companies

Status as at April 2008:


> 68 clients (banks, AMC, UTMC, insurance
companies, corporate, quasi governments)

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1.2 BWM Product Lines
Optimised to the needs of market participants

3)Fair Valuation
- Daily MTM prices/yields

6)Bond Information
- Primary Market Data
- Secondary Market Data

•Reference Pricing Service

•Bond Index

•Basel II Support Pack

•RBC Support Pack

18)Customized Data Delivery

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1.3 BWM Clients

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2.0 What Is A Bond Pricing Agency ?
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

The Solution

The BPA evaluates about 2,000+ bonds that are


Problem not traded on any given day, based on the market
Less than 1% are traded, where are the prices for prices
the remaining 99%?
The BPA needs to employ reliable database and
evaluation methodology. This methodology MUST
The Need be transparent and consistent
Daily valuation of bond portfolios for NAV
calculation and portfolio valuation

Current method
Quotes from brokers or banks, a few via internally
generated models – bias?

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2.1 Bond Pricing Regulations
BPA Registration Requirements

As per SC Guidelines on the Registration of Bond Pricing Agencies dated 25 January 2006 - strict
requirements to qualify covering:

Methodology and Process : Audited


Pricing performance : 3 month market acceptance test
Expertise : Fit and proper persons
System: Adequate security and backup
Shareholders : No controlling party
Minimum paid up capital : RM 10 million
Professional indemnity insurance : RM 10 million

Bondweb Malaysia has met and exceeded these requirements, and was appointed as the first
registered Bond Pricing Agency on 18th April 2006

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2.2 Compliance and Quality Assurance
• Bondweb Malaysia (BWM) is currently the only registered Bond Pricing Agency (BPA) with the
Securities Commission
• BWM meets and exceeds the requirements set out in the Guidelines on the Registration of
Bond Pricing Agencies dated 25 January 2006

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:

“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. “

• BWM is already supporting the implementation of the Basel II, IAS 39 and Risk Based Capital
requirement for banks and insurance companies

• Therefore, BWM is fully compliant to meet the needs of Unit Trust Management Companies,
Asset Managers and Financial Institutions with regard to the provision of Fair Value Bond Prices

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REFERENCE PRICING SERVICE (RPS)

I. What and Why


II. Market Study
III. Deliverables
IV. Fees and Charges
V. Subscription Procedures

©Copyright BONDWEB MALAYSIA SDN.BHD. - All rights reserved.


1.0 What is Reference Pricing Service?
BWM has now expanded its range of products with the introduction of Reference Pricing Service
(RPS), specifically targeted at corporate who are planning to issue bonds

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1.1 Why Do You Need It ?

“TO HELP REDUCE YOUR BORROWING COSTS!”

Objective of the RPS :

To indicate the fair price for the proposed bond issue based on the current
interest rate and economic environment

To enable you to have the necessary information when negotiating the


final rates with the buyers and arrangers of the issue.

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2.0 Market Study
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

Coupon To BNM Class Curves Observation


On Day Of Issuance
Majority of new bonds issued had coupon levels above
100bp of the BNM Consolidated Class Curves on the
day of issuance

This implies that the bonds were issued at heavy


discount as the Class Curves represents the market
average rate for the particular credit quality

Number of Matched Highest Deviation Highest Deviation Highest Deviation from


Trades to Curve from Curve (%) from Curve (bp) Curve (class)

459 93% 471bp A

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2.1 Market Study – Cont’d
We also studied the traded levels after the issue date in the Secondary Market.
We note that traded levels in the secondary market descends tremendously.
Sample A, Coupon 8.10%
 Credit environment as reflected in the
BNM Consolidated Indicative Yield was
stable throughout 1 month after the
issue date on Bond A

 However, traded yield levels were on a


descending trend and decreased by tens
of bp between the first to last trade within
a one month horizon.

Sample B, Coupon 6.10%


Conclusion :
Within one month after issue, the
traded yield has descended quickly.
Therefore, the RPS could help
reduce this borrowing spread
at the primary level.

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2.2 Market Study - Cont’d
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

Nominal Loss At Total Loss From Nominal Amount With Last


Last Trade Last Trade
Bond Name
Date * Yield (%) *
Last Trade Yield Trade Transaction Within A Month Example
(mil)
Company A, Telco IMTN
Company A, Telco issued 8 senior Islamic MTN on 28-
5.35% 28.12.2012 - MTN 18-Jan-08 5.20 RM 3.84
No. 1 Dec-2007
Company A, Telco IMTN
5.55% 27.12.2013 - MTN 28-Jan-08 5.30 RM 24.13 Seven were traded within the month from issuance
No. 2
Company A, Telco IMTN
with turnover volume of 699 Million
5.65% 26.12.2014 - MTN 28-Jan-08 5.50 RM 17.40
No. 3 Total loss from nominal amount with the last set of
Company A, Telco IMTN
trades amounted to RM 92.44 Million
5.75% 28.12.2015 - MTN 15-Jan-08 5.60 RM 14.73
No. 4
Company A, Telco IMTN
5.90% 28.12.2016 - MTN 22-Jan-08 5.80 RM 12.24
No. 5
Company A, Telco IMTN
6.10% 28.12.2017 - MTN 25-Jan-08 6.03 RM 9.18
No. 6
Company A, Telco IMTN
7.10% 28.12.2022 - MTN 25-Jan-08 7.00 RM 10.92
No. 8 * Last trade refers to last trade occurred within one month from issuance

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3.0 Deliverables

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3.1 Deliverables – Cont’d
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.

In the report we provide analyses which cover the following topics:


 Market Assessment
 Credit Assessment
 Yield Assessment
 Our view on the FAIR ISSUANCE YIELD

BWM 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. BWM will generate this on your notification.

For the duration of the RPS service till issuance of the notes, BWM would provide a complimentary User ID to
access BWM’s bond database via the BondStream software or website.
This will allow you to have one-stop, real-time access to yield levels and secondary market information at any
given time.

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3.2 Deliverables – Cont’d
Our custom-designed application :

Bond Database Market Data


• Stock Info • Indicative Money Market rates
• Facility Info • Research and commentaries
• Rating Info • Real time news
• Bond Statistics
• Statistics database Analysis Tools
• Corporate info database • Bond Analysis Tools
• Islamic bond data • Bond Calculator
• W.I Simulator
Trading Data • Favourite bonds
• Real-time Quotes • Bond Advanced Search
• Daily trading activity • Bond Trade search
• Historical trades back to • Custom Report generator
2000
• Trade map Charting
• Market depth • Real-time quote charts
• Daily charts
• Yield curves
• Technical analysis tools

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4.0 Fees and Charges
Types of Bonds Fees
Straight Bonds:
Fixed Rate / Zero Coupon Bond 2 b.p of issue size (Min. fee RM 30k)

Hybrid Structures:
Fixed Regular Amortizing Bond
Irregular Amortizing Bond
Callable Amortizing Bond
Callable Multi Step Amortizing
Multi Step Amortizing Bond
Multi Step Bond
3 b.p of issue size (Min. fee RM 30k)
Callable Multi Step
Floating Rate Note
Flipper / (Fixed , Float Structure)
Callable/Put table Bond
Convertible Bond
Callable Convertible
Multi- Step Callable Convertible

Others :
Upon negotiation
Eg. Multi rating, Multi tranche, etc

 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

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5.0 Subscription Procedure
If you would like to subscribe to the BWM Reference Pricing Service:

 All non-public documents provided by Issuer shall be kept private and confidential between the 2
parties.

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THANK YOU

19-5 , The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia
Tel: +603 2711 5122 Fax: +603 2284 1807 Email : enquiries@bondweb.com.my

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