JBICI Research Paper No. 34

Report on Infrastructure
Financing and Bond
Issuance in Malaysia

April 2007

JBIC InstituteJapan Bank for International CooperationJBICI Research Paper No. 34

Report on Infrastructure
Financing and Bond
Issuance in Malaysia

April 2007

JBIC InstituteJapan Bank for International CooperationJBICI Research Paper No. 34
Japan Bank for International Cooperation (JBIC)
Published in April 2007
© 2007 Japan Bank for International Cooperation
All rights reserved.
This Research Paper is based on the findings and discussions of the JBIC. The views expressed in thispaper are those of the authors and do not necessarily represent the official position of the JBIC. No
part of this Research Paper may be reproduced in any form without the express permission of the
publisher. For further information please contact the Planning and Coordination Division of ourInstitute.

Foreword

One of the important policy agenda for the East Asian countries to sustain theirsteady economic growth is how to efficiently and effectively develop infrastructuresuch as power,transportation, water

sewage,andtelecommunication. The

JBIC-ADB-World Bank joint research entitled “Connecting East Asia: A New
Framework for Infrastructure” indicated that, while stressing the important role ofcentral government, private sector’s infrastructure investment and utilization ofdomestic capital market could be explored to meet the enormous infrastructure
demand being estimated at over US$ 200 billion annually.
Meanwhile, learning from the lessons of the Asian financial crisis in 1997, East
Asian countries recognized the importance of developing the bond market in the regionso as to alleviate the currency and maturity mismatches in financing and to facilitate
the use of Asia’s high savings for investments in Asia.

JBIC has actively contributed

to the Asian Bond Markets Initiative (ABMI), undertakings under ASEAN+3 Finance
Ministers Process, by issuing local currency denominated bond and extending
guarantee to the local currency denominated bond issued by Japanese subsidiaries in
East Asia.
Given the nature of private infrastructure projects that normally require large scaleand long-term financing in local currencies, attention has been recently paid to the“infrastructure bond” that securitizes future cash flows from infrastructure projects as
a promising product in local currency bond markets in Asia as well as a means ofprivate infrastructure financing. In fact, some of the East Asian countries such as
Malaysia, Korea and Hong Kong have already embarked on utilizing theinfrastructure bond product.
This research paper aims to unveil the snapshot of infrastructure bond market in
Malaysia (including government policy, legal and regulatory framework, major
investors, and risk mitigation mechanisms) and the challenges for its market
development perceived by the market participants, and to make a policy
recommendation, so that the infrastructure bond market could be further developed in
East Asia. We hope that this research paper would be of any help to deepen the
deliberation on the development of bond markets as well as infrastructure in Asia.
Last but not least, we would like to express our sincere gratitude to those people
from the relevant organizations both in Japan and abroad for their extensive support
and cooperation rendered to us in conducting this research.
April 2007
Izumi Arai
Executive Director
JBIC Institutei《Research promoters from JBIC》
Satoshi Nakagawa,Task Leader, ABMI Task Force, Japan Bank forInternational Cooperation

Suk Hyun,

Bond Market Specialist, ABMI Task Force, Japan
Bank for International Cooperation《Authors of the research paper》
RAM Economics Research
Dr. Yeah Kim Leng,

Group Chief Economist

Ms. Kristina Fong,

Economist & Researcher

Mr. Fazlee Sulaiman,

Economist & ResearcheriiPreface

Malaysia’s economic progress and achievements over the past four decades havebeen accompanied by a considerable amount of investment in physical infrastructuredevelopment. Notably, the Government has been instrumental in the infrastructurebuild-up encompassing air and sea ports, highways, power, water and sewerage. Thiscan be seen by the high public expenditure for this sector amounting to a total of
RM98.8 billion during 1986-2005 period. Complementing the high public expenditure
was the country’s large scale privatization programme that resulted in the private
sector undertaking major infrastructure construction projects and provision of
infrastructure services. Between 1990 and 2005, a total of RM150.3 billion wasinvested in infrastructure projects with private sector participation. Of this total,
29.8% or RM44.8 billion was spent on the energy sector, 17.0% or RM25.6 billion on
telecommunications, 30.5% or RM45.8 billion on transport and 22.7% or RM34.1
billion on water and sewerage projects. The bulk of the private sector financing wasprovided by the domestic bond market and other avenues currently now being pursued
through private financing initiatives (PFIs). The total value of bonds issued by the
infrastructure sector, amounting to RM108.4 billion, represents a sizeable 72% of the
RM150.3 billion invested in infrastructure by the private sector. The purpose of thesebond issues include refinancing of existing borrowings, funds raised for working
capital purposes and acquisitions of companies. On average, infrastructure bonds
accounted for 36% of the total bond issuance between 1993 and 2006.
The changing role of the Public and Private sectors, with the latter shouldering an
increasingly significant responsibility, as well as still evolving optimal balance in the
distribution of risks between the Pubic and Private sectors has contributed greatly tothe country’s rapid infrastructure development. A pre-requisite in the successful shift
towards private financing is the creation of a sound legal and regulatory environment
for the smooth functioning and deepening of the domestic bond market. Equallyimportant, the government has ensured economic viability and stability in theinfrastructure services market through off-take arrangements and purchasing
agreements such as the power purchase agreements (PPAs) in the electricity sector.
The Private sector has also contributed in this respect by incorporating the relevant
credit enhancement mechanisms into their financing structures as well as taking therelevant steps to ensure the viability of the projects with respect to the contractors
involved, amongst other factors.
Although private financing capabilities, especially the use of the bond market
financing, have progressed significantly over the last two decades, the market stilliii

faces several constraints and challenges. The short tenure of these infrastructurebonds present in the market has created a mismatch between the length of the projects
and the tenure of the financing instruments, which less than ideal for the issuer
seeking to lower financing cost over the duration of the concession period. Furthermore,
the strong risk aversion among bond investors has caused the pool of investors to bedisproportionately dominated by institutional investors who are under regulation toinvest in high grade bonds only. This in turn has put additional pressure on projectsponsors that do not meet the minimum investment grade to seek other modes offinancing, as there is one less avenue to source funding from even though the project
may be viable. Other impediments that plague the bond market are more operationalin nature such as the closed or negotiated tender process and other issues relating toproject viability.
Based on the Malaysian experience on infrastructure financing through the bondmarket and the shortfalls as mentioned above, future policy initiatives should aim to
rectify the credit quality gap between issuers and sellers. These areas encompass:• the provision of financial guarantee or insurance to enhance the project's credit
rating• extending the tenures of bond instruments to match the longer project or concession
period and developing other forms of enhancing the structure of the project
financing• setting up of special institutions or funds that are able to invest in projects that are
inherently high risk due to the nature of the industry and the long gestation periodcharacterized by uncertainties in demand or cash flow generation.

iv

Table of CONTENTS

Foreword······································································································i

Preface·········································································································

iii

Table of CONTENTS······················································································v

List of Figures······························································································· vii
List of Tables ································································································ viii
Appendices ···································································································

ix

Acronyms and Abbreviations ···········································································

x

Executive Summary······················································································· S-1
1. INTRODUCTION ······················································································

1

1.1 Background ··························································································

1

1.2 Methodology and Sources of Information ··················································

1

1.3 Organization of Report ···········································································

2

2. OVERVIEW OF INFRASTRUCTURE DEVELOPMENT AND BONDISSUANCE IN MALAYSIA ·········································································

4

2.1 Infrastructure Development Trends ·························································

4

2.2 Trends in Fiscal Spending on Infrastructure Development ··························

5

2.3 Private Participation in Infrastructure Projects ·········································

8

2.4 Financing of Infrastructure Companies and Projects throughBond Issuance·······················································································

12

2.5 Current Infrastructure Development Status··············································

14

3. PUBLIC SECTOR ROLE IN INFRASTRUCTURE PROJECTDEVELOPMENT·······················································································

17

3.1 Main Policy Initiatives, Regulations and Legislations for Infrastructure
Development·························································································

17

3.2 Involvement of Government-linked Companies and their Objectives ·············

20

3.3 Assessment of Public Sector Participation and Government Policy Stancetowards Infrastructure Projects ·······························································

23

4. FINANCING METHODS FOR INFRASTRUCTURE PROJECTS ·····················

25

4.1 Overview of Financing Methods Available for Infrastructure Projects ···········

25

4.2 Financing Features of Infrastructure Bonds ··············································

29

4.3 Description of ‘Landmark” Infrastructure Project Bonds by Category············

32

4.4 Main Players in Structuring Infrastructure Financing································

61

4.5 Key Issues and Challenges in Financing Infrastructure Projects ··················

63v

5. LEGAL AND REGULATORY FRAMEWORK GOVERNING
THE BOND MARKET ················································································

66

5.1 Rules and Regulations Governing the Issuance of Bonds ·····························

66

5.2 Bond Market Development Plan ······························································

67

6. INVESTOR PROFILE ················································································

69

6.1 Demand and Risk Profile of Investors·······················································

69

6.2 Requirements of Investors in the Bond Market ··········································

71

6.3 Credit Rating and Market Performance of Selected Infrastructure Bonds······

72

7. CREDIT RISK ASSESSMENT METHODOLOGY FOR EVALUATINGINFRASTRUCTURE PROJECTS·································································

77

7.1 Checklist for Assessing Credit Quality of Infrastructure Projects ·················

77

7.2 Key Risk Areas by Type of Project ····························································

80

7.3 Specific Credit Support and Covenants used to Increase Investor
Participation and Deepening of Bond Market ············································

82

8. INFRASTRUCTRURE PROJECTS UNDER THE NINTH MALAYSIA PLAN·····

85

8.1 Potential 9MP Projects that Could be Financed through Private Financing
Initiatives (PFIs) ···················································································

85

8.2 The Viability of these Projects Securing Bond Financing ·····························

91

8.3 Risks and Opportunities for 9MP Projects Funded Through PFIs ·················

92

9. RECOMMENDATIONS FOR THE DEEPENING OF THE BOND MARKETFOR PRIVATE INFRASTRUCTURE DEVELOPMENT BASED ON THE
MALAYSIAN EXPERIENCE ·······································································

96

9.1 Key Challenges and Requirements···························································

96

9.2 Suggestions to Enhance the Role and Participation of the Public Sector ········

96

REFERENCES ·····························································································

99vi

List of Figures

Figure 1

Breakdown of Infrastructure Spending by Sub-Sectors ························

8

Figure 2

Relative Share of Public-Private Sector in Infrastructure Spending ·······

11

Figure 3

Project Financing - Contractual Framework ·······································

30

Figure 4

Project Financing - Cash Flow Ring Fencing ······································

31

Figure 5

Financing Structure········································································

40

Figure 6

Financing Structure········································································

44

Figure 7

Cash Flow Waterfall - Priority of Payments········································

50

Figure 8

Cash Flow Waterfall - Priority of Payments to BaIDS holders ···············

53

Figure 9

Cash Flow Diagram for Al-Bai Bithaman Ajil (ABBA) Facilities ············

57

Figure 10

Asset Allocation of EPF as at 31st December, 2006·······························

70

Figure 11 Market Performance of Selected Infrastructure Bonds ·························

76

Figure 12 Assessing Credit Quality of Infrastructure Projects - Key Risk Areas ·····

77

Figure 13 Development Expenditure and Allocation for Transport Sector,
2001-2010 (RM million)···································································

86

Figure 14 Development Expenditure and Allocation for Water Sector,
2001-2010 (RM Million)···································································

87

Figure 15 Development Expenditure and Allocation for Health Services,
2001-2010 (RM million)···································································

89

Figure 16 Risks and Opportunities for 9MP projects to be Financed under PFI······

93

vii

List of Tables

Table 1

Summary of Development Expenditure on Infrastructure ····················

Table 2Federal Government Development Expenditure on Infrastructure as

6

a Percentage of Total Expenditure and GDP·······································

7

Table 3Government Spending by Infrastructure by Sub-sector ························

8

Table 4

Number of Projects with Private Sector Participation ··························

9

Table 5

Private Investments in Infrastructure Projects ···································

10

Table 6

Total Public and Private Investment in Infrastructure·························

11

Table 7Issuance of Bonds by Infrastructure Companies and Special Purpose
Vehicles (SPV) ···············································································

Table 813

Comparison of Malaysia’s Infrastructure Indicators with World Averageand Lower Middle and Upper Middle Income Countries·······················

14

Table 9

Privatised Infrastructure Projects and Entities···································

18

Table 10

Changes in the Regulatory Framework to Promote Private Participation in
Infrastructure Development by Sector···············································

20

Table 11

Investment Holdings of GLCs under Khazanah Nasional Berhad ··········

21

Table 12Major Privatised Projects and Entities ··············································

27

Table 13

Sources and Applications of Funds ····················································

39

Table 14

Designated Accounts of JEV to Ensure Proper Cash Flow Discipline······

41

Table 15

Sources and Applications of Funds ····················································

43

Table 16

Sources and Applications of Funds ····················································

47

Table 17

Lead Managers’ League Table by Value of Issues·································

62

Table 18

League Managers League Table by Number of Issues ··························

63

Table 19

Capital Market Masterplan 2001-2010 and Current Implementation
Status···························································································

68

Table 20

Investment Assets of the Employees Provident Fund ···························

70

Table 21Monthly Trading Volume and Turnover Ratio ·····································

76

Table 22

Highest-Scoring Criteria for Projects in terms of Project-Level Risks ·····

78

Table 23

Federal Government Development Allocation and Expenditure·············

85

Table 24Development Expenditure and Allocation for Energy Sector,
2001-2010 (RM million)···································································

Table 25

88

High Impact Projects Identified in the 9MP or Proposedby the Private Sector ······································································

viii

90

Appendices

Appendix I

Chronology of Changes in the Regulatory Framework for the
Malaysian Ringgit Bond Market ·················································· 100

Appendix II Bond Market Development Initiatives··········································· 103
Appendix III Guidelines on The Offering of Private Debt Securities ····················· 104
Appendix IV Details of Infrastructure Bonds ···················································· 140ix

Acronyms and Abbreviations

ABS

Asset-Backed Securities - bonds issued pursuant to asecuritisation transaction

ABS IMTN

Asset-Backed Securities - Islamic medium-term notes issued
pursuant to a securitisation transaction

ABS(CP)

Asset-Backed Securities - commercial papers issued pursuant to asecuritisation transaction

ABSMTN

Asset-Backed Securities - medium-term notes issued pursuant to asecuritisation transaction

BNB

Bank Negara Bills issued by Bank Negara Malaysia

BNNN

Bank Negara Negotiable Bills - issued by Bank Negara Malaysia

BONDS

Corporate bonds issued by corporations

BOT

Build, operate and transfer

CA

Concession Agreement

CC

Capacity charges

CAGABAIS

Cagamas Bithaman Ajil Islamic Securities issued by Cagamas
BerhadCAGB

Cagamas Bonds issued by Cagamas Berhad

CAGN

Cagamas Notes issued by Cagamas Berhad

CAGR

Compounded Annual Growth RateCP

Commercial Papers issued by corporations

DFI

Development Finance Institution

EOD

Event of default

EPF

Employees Provident FundGII

Government Investment Issues issued by the Government of
Malaysia

GLC

Government-linked companies or corporations

IABS

Islamic Asset-Backed Securities - Islamic bonds issued pursuant toa securitisation transaction

IBONDS

Islamic Bonds issued by corporations

ICP

Islamic Commercial Papers issued by corporations

ILOANNOTES Islamic loan Notes issued by corporations
IMTN

Islamic Medium-term Notes issued by corporations

IPP

Independent power producer

KHA

Khazanah Bonds issued by Khazanah Nasional Berhad

LOANNOTES

Loan Notes issued by corporationsx

LOANSTOCK

Loan Stock issued by corporations

MGS

Malaysian Government Securities issued by the Government of
Malaysia

MITB

Islamic Malaysian Treasury Bills issued by the Government of
Malaysia

MTB

Malaysian Treasury Bills issued by the Government of Malaysia

MTN

Medium-term Notes issued by corporations

NFPEs

Non-financial public enterprises

PDS

Private debt securities

PPA

Power purchase agreement

SAC

Sanadat ABBA Cagamas issued by Cagamas Berhad

SMC

Sanadat Mudharabah Cagamas issued by Cagamas Berhad

ABS

Asset-Backed Securities - bonds issued pursuant to asecuritisation transaction

ABS IMTN

Asset-Backed Securities - Islamic medium-term notes issued
pursuant to a securitisation transaction

ABS(CP)

Asset-Backed Securities - commercial papers issued pursuant to asecuritisation transactionxiExecutive Summary

This report on Malaysia’s infrastructure projects and the associated use of bonds forfinancinginfrastructuredevelopment

providesacomprehensive

reviewofinfrastructure project financing in Malaysia. It covers the various types ofinfrastructure projects and the institutional framework, bond financing structures andmechanisms, role of intermediaries, stakeholders, major investors and market
environment under which these projects were implemented. Subsequent analysis
establishes the gaps prevalent in the Malaysian infrastructure bond market andidentifies possible solutions and development lessons which may be helpful tomultilateral institutions, development agencies and regulatory authorities in otherdeveloping countries facing similar issues and challenges.
Overview of Bond Infrastructure Projects and Bond Issuance in Malaysia
Malaysia has achieved significant progress in developing its physical infrastructure
to meet the growing demands arising from rapid industrialization, population growth,urbanization and an increasingly effluent society. Notably, the Government has beenvery involved in this progress with total spending on infrastructure development(covering transport, communication, energy and water resources sectors) over thetwenty-year period from 1986-2005, valued at RM98.8 billion. However, relative to thesize of the economy, Malaysia’s public spending on infrastructure amounted to 2.0% of
GDP over the 1986-2005 period which is lower than the average spending (3.8%) on
infrastructure for developing countries, according to World Bank analysis. The
relatively low public spending on infrastructure development is due largely to themassive shift to the private sector and much of the success in the country's private
financing of infrastructure projects is due to the ability of the project promoters anddevelopers to raise funds in the debt capital market.
On average, infrastructure bonds accounted for 36% of the total bond issuance
between 1993 and 2006. The sharp decline in issuance in 1998 and 1999 was caused by
the Asian financial crisis. The subsequent strong rise from 2000 onwards was thepartly the result of corporate debt restructuring that saw the substitution of shortterm bank borrowings and bond facilities with long tenured bonds to address thefunding and maturity mismatches that contributed to the financial distress of
infrastructure companies. It is evident that the bond market is the major provider offunds for infrastructure financing in the private sector. The total value of bonds issued
by the infrastructure sector, amounting to RM108.4 billion, represents a sizeable 72%of the RM150.3 billion invested in infrastructure by the private sector. The purpose of
S－1

these bond issues includes refinancing of existing borrowings, funds raised for working
capital purposes and acquisitions of companies.
Public Sector Role in Infrastructure Project Development
The Government first announced privatization as a national policy in 1983.
Representing a new approach in the national development policy, it complemented
other national policies such as the Malaysia Incorporated policy that were aimed atachieving private sector-led growth of the economy and a reduced financial burden on
the Government finances, amongst others.
Privatisation strategies promoted projects that had high multiplier effects andstimulated economic growth, maximizing social welfare at the same time. Furthermore,
to facilitate the implementation of privatization programme, the Government amended
a number of laws such as the Road Transport Act 1987 which regulated prices charged
for Toll Roads.
Government-linked corporations (GLCs) have also become actively involved ininfrastructure development in the country either as the main sponsor or off-taker of
infrastructure projects. In the power segment, Tenaga Nasional Berhad (TNB) as thenational electricity company has entered into Purchasing Power Agreements (PPAs)
with the Independent Power Producers (IPPs). Since 2004, the GLCs have undergone a
re-vamp and one of the main developments from this plan of action was the placementof 30 GLCs under the management of Khazanah Nasional Bhd which is the investment
arm of the Government.
Following two decades of privatization experience, the earlier aggressive policy
stance is now moderated by emerging concerns over the costs of privatization andpublic objections over the manner in which the projects and concessions had been
awarded previously. Nevertheless, public entities are expected to remain important
players in the financing, development and delivery of infrastructure projects and withthe on-going reforms and higher emphasis on efficiency in these organizations, thestability of these entities may prove a way in which Malaysia will be able to access ahigher proportion of external financing in these infrastructure projects.
Financing Methods for Infrastructure Projects
Project financing refers to the funding of long-term infrastructure projects usually inthe realm of public utilities. Funding is based on a financial composition that involves
both equity and debt, structured in a way in which potential cash flow from the projectS－2

will be used to repay the commitments to the external sources of financing. Special
Purpose Vehicles (SPVs) are created for the purpose of the project where assets, alongwith the revenue generating source are used to secure the project’s viability. Financial
institutions such as investment banks, trustees and rating agencies form part of theintermediary network that enables this relatively complex financing initiative to cometogether cohesively.
Project bond financing, in particular has gained prominence as a viable andprofitable method for raising project finance since the 1990s, especially after the Asianfinancial crisis where many affected countries in the region naturally turned to thebond market for financing, given the lack of liquidity in the equity capital market andbanking sector in the aftermath of the financial crisis. Banks, however, still remain amajor source of financing for large projects, especially in the case of specialized
development banks.
Most infrastructure financings in recent years have taken the form of project
financing bonds. This is due to the very nature of raising funds for infrastructure
where they are project-based (purpose-built asset), centered on a specific activity orobjective with a limited project life-span. A distinct feature of a project financing
scheme is the ‘cash flow ring fencing’ arrangement which enables a clear allocation offunds to their specific purpose which acts as a safeguard to satisfy the broad range of
project expenses and financing repayments. Another distinguishing characteristic ofproject financing structures is the stable cash flow requirement, a feature which theGovernment can play a crucial role particularly in privatized projects.
Numerous ‘landmark’ deals corresponding to the various segments of theinfrastructure sector have been identified and their financing structures and credit
enhancing features highlighted. Analysis of these deals leads us to find that as thedemand for infrastructure continues to grow in tandem with economic growth, there
are certain issues prevailing in infrastructure financing which have limited theamount of investor funds in this segment of financing, ultimately resulting in amismatch in the supply and demand of funds in the country’s financial system; such as
under-developed segments (long tenure bonds that match concession period) of thedebt capital market and risks pertaining to economic and policy-related uncertainty.
Another recurring theme which poses an ongoing challenge to the financing situationin Malaysia is the optimal balance between the public sector and private sector interms of cost and risk-sharing in the funding arrangement. All these factors above
point towards the high importance of having appropriately structured bonds which are
critical to the success of raising finance for the respective projects.

S－3

Legal and Regulatory Framework Governing the Bond Market
The Malaysian bond market is supervised by two principal regulatory bodies,
namely Bank Negara Malaysia (Central Bank of Malaysia) and the Securities
Commission (SC).
Bank Negara Malaysia (BNM) regulates the activities of financial institutions via
the Banking and Financial Institutions Act of 1989 (BAFIA). It issued the Guidelines
on the Issuance of Private Debt Securities in 1989 which established the process,procedures and criteria for any resident company to raise funds from the public. A
resident company is free to issue any amount of ringgit PDS. On 1 July 2000, theapproving authority for private debt securities (PDS) was transferred from BNM to theSC, pursuant to the Securities Commission Act of 1993 with the power to regulate theissuance of and the dealings in securities, to encourage the development of the
securities market, and to curb improper dealings. It also regulates all matterspertaining to unit trusts and takeovers and mergers. The development plan for the
Malaysian bond market is spelt out in the Capital Market Masterplan (CMP) releasedin February 2001. It is a comprehensive plan charting the strategic positioning andfuture direction of the Malaysian capital market for the next ten years (2001 - 2010)
and includes strategies to encourage more private (as well as foreign) investor
participation in the bond market.
Investor Profile
The nature of infrastructure project bonds mainly appeals to institutional investors
such as the insurance companies, unit trusts and pension funds due to their long-term
investment periods that enable these institutions to generate a stream of long-term
cash flows consistent with their objectives. Each insurance company has its own
policies in terms of how much of its funds (with respect to the stated limit) may beinvested in debt. This proportion could range from 10% to 30% in the Malaysian
insurance industry.
The Employee's Provident Fund (EPF) remains the largest investor in the market
with the majority of funds invested in Malaysian Government Securities (MGS) due toregulatory requirements. It has a sizeable investment portfolio in bonds and loans(especially in the infrastructure sector), amounting to RM100.7 billion as at the end of
February 2007.
One dominant feature of the profile of investors in the Malaysian bond market istheir risk adverse attitude towards investment. This is exhibited by the fact thatS－4

investors are very reluctant to invest in bonds that have long-term ratings below single
A. Thus high grade bonds with extremely robust credit quality are of great importanceto the institutional bond investors. Moreover, the institutional investors require
relatively stable streams of cash flow in order to service their respective clients’returns to investment. Infrastructure bonds are seen to be one of the more stablesectors in the economy in this regard, mainly due to the fact that many of theseprojects tend to be state-led initiatives or concessions awarded to the private sector. To
meet the stable cash flow requirement and the risk aversion of institutional investors,
it is noted the optimal balance in risk-sharing arrangement between the public sector
and the private sector is still evolving for the different types of infrastructure projects
which have varying risk profiles.
Credit Risk Assessment Methodology for Evaluating Infrastructure Projects
Given the increasingly diverse needs of project sponsors and lenders in theinfrastructure financing segment and the dynamic environment that these projects
operate in, assessing the credit quality of such projects has become a more complicatedandsignificant

process.

A

concisemethodologicalframework

derivedfrom

methodologies used by Standard and Poor’s and Ratings Agency Malaysia Berhad waspresented to illustrate their analysts quantify and qualify the risks involved in project
financing.
The analytical framework consists of 5 steps, namely; Project-level risks, Sovereignrisk, Institutional risk, Force Majeure risk and Credit Enhancements. More detailed
credit analysis is also applied to specific infrastructure projects such as Toll Roads and
IPPs.
In addition to this, analysis of the financial covenants and credit enhancement
mechanisms prevailing in the specific sectors shows distinct characteristics amongst
the sectors. Despite the unique characteristics of each sector, there exist similar
themes directed at ensuring that the debt servicing requirements are met and asystematic organization of funds for more stringent cash flow management, such as
Waterfall cash flow structures and the use of designated accounts is in place.
Infrastructure Projects under the Ninth Malaysia Plan (9MP)The Eighth Malaysia Plan (8MP) saw the expansion of the transportation, watersupply and sewerage networks with total government expenditure for the 5-year
period from 2001 to 2005 reaching RM38.7 billion on public utilities infrastructurealone. The Ninth Malaysia Plan (9MP) for the 2006-2010 period will continue toS－5

expand the development of infrastructure with concerted efforts to increase theefficiency of existing facilities and improve accessibility and linkages in rural areas.
Compared to the 8MP, there is a considerable increase in the 9MP in total spendingon the Energy, Public Utilities and Housing segments, with a notable moderateincrease in Education and Training spending too. Amongst these sectors, only theTransport, Education (having the largest scope of PFI activity) and Housing sectors
possess the opportunities for Private Financing Initiatives (PFIs) as budgeted by theGovernment. This could mainly be due to the Government feeling the need of keeping
these integral sectors under their control in the era of the requirement for theestablishment of new infrastructure for the changing market environment; i.e. new
infrastructure for 3G networks and infrastructure for alternative energy facilities.
Furthermore, given the significance of the proper setting up of this infrastructure in
its initial stages of development, Development Finance Institutions are also expected
to be involved in their growth. Notable large infrastructure projects planned for thisperiod include the Inter-State Raw Water Transfer Project and projects pertaining totransportation service infrastructure in Penang.
Given the fiscal constraints faced the government and the large financing
requirements to implement the 9MP, the government has promoted the concept ofprivate financing initiatives (PFI) to assist in the implementation of these projects.
There are various opportunities inherent in the use of PFI in the financing of theseprojects which include the increased use of Islamic Financing instruments which areseen to be well-suited for infrastructure financing.
Certain structures such as the “Istisna” are especially ideal for projects that haveconstruction risk, which is one of the main characteristics of infrastructure financing.
There is ample opportunity for project sponsors to tap into this market for funding
especially from the pool of ‘petro-dollars’ coming from Arab nations.
Critical Success Factors in Malaysia's Infrastructure Financing Experience
Financing through the issuance of bonds is well suited for large scale, long term
projects that have well-defined cash flow streams that can be utilized to service debt
repayments. Bond financing is also used in instances where other forms of borrowing
seem too risky for the lender to bear, for example, bank loans.
Another key factor underpinning the viability of long term bond financing is thenature and extent of government involvement in the project. If the project is in the
S－6

form of a concession, the off-taker (usually the Government, government-linked
company or privatized entity in which the government considers to be of strategic
value) will be deemed to be of a credible stature, thereby further improving its status
as a stable investment.
The presence of well-structured financing schemes with adequate and well-matchedfinancial covenants will also increase the viability of debt financing. A stable andwell-defined revenue stream will strengthen debt servicing ability and assure a highcredit rating which is necessary given the risk adverse investment behavior prevalent
in the Malaysian bond market. Most infrastructure projects (especially those
implemented by the Government) are found to possess these favorable characteristics
that enabled high bond ratings to be achieved, thereby contributing to the expansion of
the domestic bond market for long term infrastructure project financing.
Recommendations for Participation in Financing of Infrastructure Projects
There is a need to focus on enhancing funding efficiency for infrastructure projects in
Malaysia. One of these areas centers in on the construction risk for green field projects
where there is an opportunity for a strong entity to provide a “construction
performance guarantee” which covers the cost overrun, timeline delivery andperformance specifications to enhance the project debt’s ratings during theconstruction phase. This allows for the project bonds to be issued at higher ratings,
thus lowering financing costs over the project life.
There are also not many ringgit bonds that have tenures exceeding 10-15 years,
resulting in a maturity mismatch with respect to long gestation infrastructure projects
which are often built for a useful life of 30 years and above. Thus, there is a need toaddress this shortfall through the introduction of instruments that can facilitate thematching of the funding tenures with the concession periods or useful life of the asset.
Given the pressure on projects to take on more debt in their financing structures tohandle project financing requirements, it may also be feasible to consider setting up a
Project Finance Equity Fund to lend equity support to project promoters. The viabilityof this fund rests on transparency and good corporate governance resulting in stronger
returns to shareholders.
One possible solution to address the high risk aversion mind-set that is implicating
the bond market is the setting up of a high yield bond fund which would focus on the A
and BBB-rated bonds; managed by professionals who are well versed with the credit
risks of companies. This outsourcing of funds from the Employees Provident Fund,
S－7

Malaysia’s largest bond investor as well as other institutional investors will help
create a market for these purposes and deepen the bond market for sustainable
development.

S－8

1.

INTRODUCTION

1.1 Background
This report on Malaysia’s infrastructure projects and the associated use of bonds forfinancing infrastructure development is the culmination of a 2-month study
commissioned by Japan Bank for International Cooperation (JBIC).
The objectives of the study are:
• To provide a comprehensive review of infrastructure project financing in Malaysia
covering the various types of infrastructure projects and the institutionalframework, bond financing structure and mechanisms, role of intermediaries,
stakeholders, major investors and market environment under which these projects
were implemented.
• To identify infrastructure projects included in the 9th Malaysia Plan that could be
financed under private financing initiatives (PFI).
• To suggest an evaluation framework and methodology for examining the feasibilityof using bonds and other debt instruments to finance infrastructure projects,
including the use of credit-enhancing mechanisms that enabled investors toparticipate actively in the bond market.
The research draws upon major infrastructure projects that have been implemented
in Malaysia. Information gathered on the various infrastructure projects includes the
major sponsors, stakeholders and investors, the enabling policy and regulatory
framework and government support that facilitated infrastructure fund raising.
The study also examined successful cases and failures that encapsulate key lessons
for infrastructure project financing and highlight the role and contribution of
infrastructure financing to the development of the local bond market.
1.2 Methodology and Sources of Information
The study was based on information gathered from the following sources:(1) Research materials, principally rating rationales and publications sourced fromthe country’s two domestic rating agencies, Rating Agency Malaysia Berhad1

(RAM) and Malaysia Rating Corporation Berhad (MARC). Project data werereconciled with the World Bank’s Private Participation in Infrastructure (PPI)
database for Malaysia.
(2) Conference, seminars and workshop papers on infrastructure development,
financing and related topics.
(3) Interviews with selected rating analysts, sponsors, lead managers and adevelopment finance institution.
(4) Official documents such as 5-year development plans particularly the Ninth(2006-2010) Malaysia Plan, privatization master plan and Industrial Master Plan
(IMP) 2 (1996-2005) and 3 (2006-2020)
1.3 Organization of Report
The remaining sections of this report are organized as follows:
Section 2 provides an overview of infrastructure development in Malaysia and theissuance of bonds to finance infrastructure projects.
Section 3 details the changing role of the government in infrastructure development
and provision of infrastructure services. In particular, the rationale and approach
adopted by the government to harness private sector capabilities and resources to meetthe growing societal demands for more comprehensive infrastructure and better
quality services are discussed in relation to the country's the infrastructuredevelopment trends and requirements.
The commonly used financing methods for infrastructure projects, key financing
characteristics and main players and intermediaries are discussed in Section 4.
Section 5 covers the legal and regulatory framework for raising capital to financeinfrastructure projects is described in relation to the bond market's issuance andinvestment requirements.
The profile of investors in infrastructure bonds is examined in Section 6. In Section 7,
a description of the credit risk assessment methodology adopted by credit rating
agencies to rate these bonds is given. This is followed by a description of the major
infrastructure projects identified for implementation during the 9th Malaysia Plan
(2006-2010).

2

In the concluding section, suggestions on how JBIC could participate in thefinancing of infrastructure projects in Malaysia are provided.

3

2.

OVERVIEW OF INFRASTRUCTURE DEVELOPMENT AND
BOND ISSUANCE IN MALAYSIA

2.1 Infrastructure Development Trends
Both a cause and a consequence of sustained economic growth, Malaysia hasachieved significant progress in developing its physical infrastructure to meet thegrowingdemands

arising

from

rapid

industrialization,

population

growth,urbanization and an increasingly effluent society. The reach and quality of its physicalinfrastructure - in utilities (electricity, water and gas), transport, telecommunications
and administrative facilities, now ranks among the upper quartile of middle-income
economies.
The key factors contributing to the rapid development of the country’s
infrastructures and facilities include:• Sustained economic growth: With annual GDP growth averaging 6.2% (CAGR) overthe last 15 years (1990-2005), coupled with rapid urbanization and high population
growth, the demand for basic infrastructure such as utilities (power, water andsewerage), transport, ports and telecommunications have grown at a faster pace (forexample, electricity 9% CAGR, mobile phone subscribers 44%, water production
6.9%, over the same period).
• High public expenditure:

There wascontinuing

government emphasisoninfrastructure development as evidenced by the high budgetary allocation andspending over the various 5-year development plans. The fiscal spending priorities
on infrastructure are examined in Section 2.2.
• Fiscal constraints and early shift to privatization: In the early 1980s, unsustainablefiscal deficits coupled with the growing failures and inefficiencies of state-owned
enterprises and government agencies involved in the provision of infrastructureservices such as ports, electricity, telecommunications and highways, resulted in achange in policy stance that emphasized privatization and private sector-led growth.
The implications of this policy shift on infrastructure development are assessed in
Section 3.
• Strong domestic financing capabilities: In the first half of each of the decades in the
1970s, 1980s and 1990s, gross capital formation (or investment as it is morecommonly known) generally exceeded savings as mirrored in the current account4

deficits. During the 1990-2005 period, the country’s gross national savings averaged
34.5% of GDP while gross capital formation averaged 31.4%, giving rise to a positivesavings-investment gap of 3.1% of GDP in current prices. The surplus domestic
financing resources are particularly pronounced since the 1998 financial crisis
where the excess savings averaged 12% of GDP or RM44.8 billion per annum during
the 1998-2005 period. Besides surplus resources, the rapid development of thecorporate bond market was another factor that facilitated the mobilization of longterm savings for investment in long tenured, fixed coupon bonds through thepension funds, insurance and fund management industries.
• Active participation by government-linked companies and agencies: There was strong
participation in Malaysia’s privatization programmes by government-linked
companies and agencies in various phases of privatization ranging from project
identification, building and construction, operation and maintenance andinvestment as an equity or bondholder. The role of these GLCs in widening thescope of privatization and facilitating private sector financing through the issuanceof long-term bonds is further explored in Section 3.2.
• National agenda to promote equity restructuring and Bumiputera participation incommerce and industry: Finally, related to the preceding point, the national
political agenda to promote Bumiputera participation in commerce and industry via
GLCs and Bumiputera-controlled companies was another key factor underpinning
the strong infrastructure push.
2.2 Trends in Fiscal Spending on Infrastructure Development
The Malaysian government has placed strong emphasis on infrastructuredevelopment as evidenced by the large spending during each development plan period.
Rise in Infrastructure Spending by the Government
As shown in Table 1, total spending on infrastructure development, coveringtransport, communication, energy and water resources sectors over the twenty-year
period from 1986-2005 amounted to RM98.8 billion. The amount spent on
infrastructure rose sharply by 48% from RM11.2 billion in the 5th Malaysia Plan period(1986-1990) to RM16.6 billion in the 6th Malaysian Plan (1991-1995). The amountspent further jumped 59.1% to RM26.4 billion in the 7th Malaysia Plan period(1996-2000). In the 8th Malaysia Plan from 2001-2005, there was a further 68.8% rise
to RM44.6 billion.

5

Table 1. Summary of Development Expenditure on Infrastructure
5MP(1986-90)

6MP(1991-95)

7MP(1996-2000)

8MP(2001-05)

11.2

16.6
48.2%
16.8%

26.4
59.1%
26.7%

44.6
68.8%
45.1%

100.0%

Sub-sectors
Transport
60.9%
73.9%
Communication
7.1%
0.4%
Energy8.2%
5.0%
Water resources
23.8%
20.7%
Total
100.0%
100.0%
Source: Compiled from various 5-year Malaysia Plans

78.8%
0.2%
9.6%
11.4%
100.0%

70.2%
1.3%
11.1%
17.4%
100.0%

72.1%
1.5%
9.4%
17.1%
100.0%

Total infrastructure (RM billion)% change over the last period% of total

11.3%

Total
98.8

High allocation for infrastructure development
A breakdown of the total federal government development expenditure is shown in
Table 2. It is seen that the share of infrastructure in total spending remained about thesame at 31.7 per cent in the 5MP and 30.3 per cent in the 6MP. It declined to 26.7 percent in the 7MP (1996-2000) and the proportion remained approximately the same at
26.2% in the 8MP (2001-2005).
The lower proportion in government expenditure outlay for infrastructure during the
7MP and 8MP periods from 1996-2005 can be attributed to the significant rise in
privatization of infrastructure projects as discussed in Section 2.3.
Relative to the size of the economy, Malaysia's public spending on infrastructureamounted to 2.0% of GDP over the 1986-2005 period. A sizeable increase is seen in the
2001-05 period where its share to GDP rose to 3.8% from 1.8% in the previous period.
According to the World Bank, the average spending on infrastructure for developing
countries is about 3.8% of GDP with some countries that have poorly developed
infrastructure having to spend in excess of 5% of GDP.
The relatively low public spending on infrastructure development is due largely tothe massive shift to the private sector as discussed in Section 2.3. Much of the successin the country’s private financing of infrastructure projects is due to the ability of the
project promoters and developers to raise funds in the debt capital market (see Section
2.4).

6

Table 2. Federal Government Development Expenditure on Infrastructure
as a Percentage of Total Expenditure and GDP
SectorEconomica. Agricultureb. Mineral resources developmentc. Commerce and industry
d. Transporte. Communication
f. Energy
g. Water resources
h. Feasibility studies
i. R&D

5MP (1986-90)
RM mn%
22,886 64.8
7,325 20.8
43
0.1
3,981 11.3
6,823 19.3
792
2.2
918
2.6
2,667
7.6
0.1
52
285
0.8

6MP (1991-95)
RM mn%
27,712 50.7
6,344 11.6
50
0.1
4,047
7.4
12,270 22.4
70
0.1
829
1.5
3,433
6.3
99
0.2
570
1.0

7MP (1996-2000)
RM mn%
47,172 47.6
8,139
8.2
41
0.0
11,258 11.4
20,826 21.0
47
0.0
2,544
2.6
3,000
3.0
265
0.3
1,053
1.1

8MP (2001-05)
RM mn%
65,446 38.5
7,749
4.6
49
0.0
10,1746.0
31,318 18.4
560
0.3
4,969
2.9
7,753
4.6
421
0.2
1,960
1.2

Sociala. Education and training
b. Healthc. Information and broadcastingd. Housing
e. Culture, youth and sport
f. Local authorities and welfare
g. Village and communication development
h. Purchase of land

8,764
5,700
931
20
1,452
131
291
237
2

24.8
16.1
2.6
0.1
4.1
0.4
0.8
0.7
0.0

13,555
7,315
2,387
108
1,825
451
701
543
225

24.8
13.4
4.4
0.2
3.3
0.8
1.3
1.0
0.4

31,24819,724
3,726
192
3,331
1,365
1,565
1,319
62

31.6
19.9
3.8
0.2
3.4
1.4
1.6
1.3
0.1

69,37743,729
9,506
450
6,972
1,113
5,942
1,665
-

40.8
25.7
5.6
0.3
4.1
0.7
3.5
1.0
0.0

Securitya. Defenceb. Internal security

2,527
1,497
1,030

7.2
4.2
2.9

10,987
9,258
1,729

20.1
16.9
3.2

11,644
9,539
2,105

11.8
9.6
2.1

22,042
17,298
4,744

13.0
10.2
2.8

General Administrationa. General services
b. Upgrading and renovation

1,122
944
179

3.2
2.7
0.5

2,451
2,352
99

4.5
4.3
0.2

8,937
8,746
191

9.0
8.8
0.2

13,135
12,839
296

7.7
7.6
0.2

TOTAL

35,300 100.0

54,705 100.0

99,037 100.0

170,000 100.0

Memo:Infrastructure spending (Economic: d - g)
% GDP

11,2002.4%

16,602
1.9%

26,4161.8%

44,600
3.8%

31.7

30.3

26.7

26.2

Source: Compiled from various 5-year Malaysia Plans

Government Spending by Infrastructure Sub-sector
A large part of the public spending on infrastructure is centered on transport. It
amounted to RM71.2 billion or 72.1% of the total spending on infrastructure over the
1986-2005 period (Table 3 and Figure 1). Water resources sector is the second large
recipient of government funding, amounting RM16.9 billion or 17.1% of the total.
Expenditure on communications and energy on the other hand was relatively small.
The relative small amount spent on communications is largely due to the privatizationof the national telecommunications company (Syarikat Telekom Malaysia) and theopening of the mobile telephone industry to private players. Likewise, government
spending on energy was relatively small, at RM9.3 billion, attributed largely to theprivatization of the national electricity company (Tenaga Nasional Berhad) and theopening of the electricity generation industry to independent power producers (IPPs)
in 1994.

7

Table 3. Government Spending by Infrastructure by Sub-sector(RM billion)
5MP
Infrastructure Sector(1986-90)

6MP
7MP
8MP
(1991-95) (1996-2000) (2001-05)

Total% of total

Transport

6.8

12.3

20.8

31.3

71.2

72.1%

Communication

0.8

0.1

0.0

0.6

1.5

1.5%

Energy

0.9

0.8

2.5

5.0

9.3

9.4%

Water resources

2.7

3.4

3.0

7.8

16.9

17.1%

Total

11.2

16.6

26.4

44.6

98.8

100.0%

Source: Compiled from various 5-year Malaysia Plans

Figure 1. Breakdown of Infrastructure Spending by Sub-Sectors
50.0
45.0
40.0
RM billion

35.0
30.0
25.0
20.0
15.0
10.0
5.0
5MP (1986-90) 6MP (1991-95) 7MP (1996-00) 8MP (2001-05)
Transport

Communication

EnergyWater resources

2.3 Private Participation in Infrastructure Projects
In the World Bank’s Private Participation in Infrastructure (PPI) database, a total of
87 projects in Malaysia were listed between 1990 and 2005. A breakdown of the
projects by primary sector and by year is shown in Table 4. Altogether there were 24
projects in energy, 7 in telecommunications, 43 in transport and 13 in water andsewerage.

8

Table 4. Number of Projects with Private Sector Participation
Financial
Closure Year
1990

0

1

0

Water andsewage
0

1991

0

0

1

0

1992

2

0

1

1

4

1993

3

0

4

3

10

1994

5

4

5

1

15

1995

1

2

6

1

10

1996

0

0

5

1

6

1997

2

0

5

0

7

1998

0

0

2

0

2

1999

1

0

2

0

3

2000

0

0

3

2

5

2001

6

0

2

1

9

2002

1

0

0

1

2

2003

1

0

4

1

6

2004

1

0

1

1

3

2005

1

0

2

0

3

Total

24

7

43

13

87

49%

15%

100%

EnergyTelecom

Transport% of total
28%
8%
Source: World Bank PPI Database

Total
1
1

The value of private investment in these projects for the period from 1990 to 2005 istabulated annually in Table 5. Between 1990 and 2005, a total of RM150.3 billion were
invested in infrastructure projects. Of this total, RM44.8 billion or 29.8% was spent on
the energy sector, RM25.6 billion or 17.0% on telecommunications, RM45.8 billion or
30.5% on transport and RM34.1 billion or 22.7% on water and sewerage projects.

9Table 5. Private Investments in Infrastructure Projects
Year ofInvestment(RM million, current prices)% of
Water andnominalTotal
sewageGDP

EnergyTelecom

Transport

1990

0

2,353

0

0

2,353

2.0

1991

0

0

0

0

0

0.0

1992

3,439

0

408

723

4,570

3.0

1993

3,424

0

1,539

6,585

11,547

6.7

1994

8,347

1,962

5,275

2,072

17,656

9.0

1995

3,010

2,538

4,738

25

10,311

4.6

1996

0

2,599

7,945

0

10,544

4.2

1997

605

1,893

6,138

0

8,637

3.1

1998

0

687

2,322

0

3,009

1.1

1999

741

1,125

1,193

0

3,059

1.0

2000

0

1,049

4,153

15,067

20,269

5.9

2001

6,707

1,592

2,599

0

10,898

3.3

2002

46

1,813

0

61

1,919

0.5

2003

7,790

1,657

5,966

0

15,413

3.9

2004

4,598

4,514

1,300

9,580

19,992

4.4

2005

6,059

1,814

2,223

0

10,0962.0

Total

44,76425,59545,80034,113150,273

3.4% of total

29.8%

17.0%

30.5%

22.7%

100.0%

Source: World Bank PPI Database

An estimate of the total combined public and private investment in infrastructure
based on the public expenditure and the above private investment is shown in Table 6.
There could be double-counting in the pooling of the public spending and private
investments. Nonetheless, the total amount provides an indication of the likely
magnitude of total infrastructure spending in the country. It is seen that the total
infrastructure spending averaged 5.4% of GDP which is close to the average observed
for developing countries.

10Table 6. Total Public and Private Investment in Infrastructure(RM million)
EnergyTelecom

Transport

1990

184

2,511

1,365

Water &
sewerage
533

1991

166

14

2,454

687

1992

3,605

14

2,862

1993

3,589

14

3,993

1994

8,513

1,976

7,729

1995

3,176

2,552

7,192

Year

Total

% of GDP

4,593

3.9

3,320

2.5

1,410

7,890

5.2

7,271

14,868

8.6

2,759

20,976

10.7

712

13,631

6.1

1996

509

2,608

12,110600

15,827

6.2

1997

1,114

1,903

10,304600

13,920

4.9

1998

509

696

6,488

600

8,292

2.9

1999

1,250

1,134

5,358

600

8,342

2.8

2000

509

1,058

8,319

15,66725,552

7.4

2001

7,701

1,704

8,863

1,551

19,818

5.9

2002

1,039

1,925

6,264

1,611

10,839

3.0

2003

8,784

1,769

12,2301,551

24,333

6.2

2004

5,592

4,626

7,563

11,13028,912

6.4

2005

7,053

1,926

8,487

1,551

19,016

3.8

Total

53,29026,431

111,579

48,831

240,131

5.4% private

84%

97%

41%

70%

63%

63%

% public
16%
3%
Source: World Bank PPI Database

59%

30%

37%

37%

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

16%

3%
30%

37%

59%

% public% private

97%
84%
70%

63%

ta
l
To

e
er
ag
se
w

W
at
er

&

Tr
an
sp

om
le
c
Te

er
g
En

or
t

41%

y

% of total

Figure 2. Relative Share of Public-Private Sector in Infrastructure Spending

As shown in Figure 2, there is extensive involvement of the private sector in
financing investment across all the infrastructure sub-sectors, the highest being intelecommunications with 97% share followed by energy with 84% share.

11

2.4 Financing of Infrastructure Companies and Projects through Bond Issuance
Overview of the Ringgit Bond Market
Although the beginning of the Malaysian corporate bond market, or the private debt
securities (PDS) market as it is more popularly called locally, can be traced to theestablishment of the National Mortgage Corporation (or Cagamas Berhad) in 1986, it
was not until the promulgation of the Guidelines on the Issuance of Private Debt
Securities by the Central Bank of Malaysia in 1988 that Malaysian companies could
issue bonds to raise funds from the public. In 1990, the first domestic rating agency
was incorporated and it rated the first two corporate issues in 1991.
Among the early development initiatives mounted by the government to acceleratemarket acceptance and widen the use of credit ratings was to make credit rating ofcorporate bonds mandatory in 1992. This was followed by the establishment of thesecond rating agency in 1995 to provide issuers with an alternative source, besides
promoting competition in the domestic rating industry.
These developments together continuing fine-tuning of the legal and regulatory
framework, widening of the pool of market intermediaries such as lead managers andtrustees and the streamlining of market trading and information infrastructures
enabled the largely over-the-counter bond market to expand rapidly in tandem withthe growing demand of fixed income investors such as pension funds, insurancecompanies and fund management companies.
Issuance of bonds to finance infrastructure projects and fund infrastructure companies
Despite the young age, the necessary legal, regulatory and market infrastructures
were sufficient to generate investors’ appetite for large scale, long term bonds during
the formative years of the bond market. As shown in Table 7, infrastructure bonds
accounted for a large volume of the issuance (in value terms) during the early years of
the bond market.
On average infrastructure bonds accounted for 36% of the total bond issuance
between 1993 and 2006. The sharp decline in issuance in 1998 and 1999 was caused by
the Asian financial crisis. The subsequent sharp rise from 2000 onwards was thepartly the result of corporate debt restructuring that saw the substitution of shortterm bank borrowings and bond facilities with long tenured bonds to address thefunding and maturity mismatches that contributed to the financial distress of
infrastructure companies.

12

Table 7. Issuance of Bonds by Infrastructure Companies andSpecial Purpose Vehicles (SPV)(RM million)
All issues in%the bond infrastructure
marketbonds

Infrastructure sector
Power

Transport

Water

Telco

Total

1993

1,650

0

0

0

1,650

3,364

49%

1994

2,261

0

0

0

2,261

5,506

41%

1995

0

3,065

0

0

3,065

9,201

33%

1996

250

2,200

0

0

2,450

12,384

20%

1997

2,230

0

0

0

2,230

14,623

15%

1998

529

0

0

0

529

10,832

5%

1999

0

0

0

0

0

23,350

0%

2000

1,619

1,505

3,542

0

6,666

21,992

30%

2001

9,420

3,495

547

700

14,16231,502

45%

2002

945

8,913

300

1,100

11,25826,66042%

2003

10,995

5,950

350

8,029

25,32442,790

59%

2004

4,427

1,170

3,943

100

9,640

28,050

34%

2005

8,289

7,253

3,195

460

19,19735,656

54%

2006

2,401

5,435

1,808

292

9,936

31,73731%

Total

45,01638,986

13,685

10,681

108,368

297,648

36%% of total

41.5%

36.0%

12.6%

9.9%

100.0%

Source: Compiled from Bondweb Malaysia and RAM Bond Market databases

The power sector is the largest issuer with total value issued amounting to RM45.0
billion or 41.5% of the total of RM108.4 billion issued between 1993 and 2005.
Transport is the second largest with RM39.0 billion or 36.0% of the total issue value.
The other two sectors, water and telecommunications, account for the remaining
amount of RM13.7 billion (12.6%) and RM10.7 billion (9.9%) respectively.
It is evident that the bond market is the major provider of funds for infrastructure
financing in the private sector. The total value of bonds issued by the infrastructure
sector amounting to RM108.4 billion represents a sizeable 72% of the RM150.3 billion
invested in infrastructure by the private sector as presented in Table 5.
The bond issues include refinancing of existing borrowings, funds raised for working
capital purposes and acquisitions of companies. Assuming that the bonds raised forsuch purposes amounted to 30% of the total funds, the financing amount via bondissues still account for a sizeable 50% of the total private investment in infrastructure
projects.

13

2.5 Current Infrastructure Development Status
Malaysia’s current infrastructure quality and access is comparable to those in theupper middle income countries as shown in Table 8.
Table 8. Comparison of Malaysia’s Infrastructure Indicators with World Average andLower Middle and Upper Middle Income Countries
Infrastructure Performance Measure

TRANSPORT: ROADS & RAILWAYS
Road density in terms of population
road-km / 1000 people
Road density in terms of landroad-km / 1000 sq km
Rail lines density in terms of population rail-km / 1000 people
Rail lines density in terms of land
rail-km / 1000 sq km
Paved roads% of total roads
ELECTRICITY
Access to electricity network% population
Electricity reform indications
a. Regulation: Existence of independent regulatory agency
b. Ownership: Existence of private participation in generationc. Ownership: Existence of private participation in distribution
d. Market structure: Vertical integration

Lower
World
middleAverageincomeMalaysia
2000

2001

2002

2003

2004

2.8
202.3

3.0
218.7

2.9
219.8
0.07
4.98

3.1
235.1

3.0
236.6

78

95

Upper
middleincome

6.7
840.6
0.33
23.12
50

4.9
327.7
0.30
15.20
47

9.2
1,076.4
0.51
31.3
57

60

82

87

91
78

94
85

96
91

501
213
296
9
335
49

301
126
179
6
314
44

635
261
381
9
305
54

YES
YES
NO
NO

WATER AND SEWAGE
Access to improved water sources% population
Access to improved sanitation% population (rural)
Water reform indicators
a. Regulation: Existence of independent regulatory agency
b. Ownership: Existence of private capital

95
98
NO
YES

TELECOMMUNICATIONS
Total telephone subscribers
per 1000 people
Mainlines teledensity
per 1000 people
Cellular subscribers
per 1000 people
Cost of local phone call
US cents / 3 min
Cost of phone call to US
US cents / 3 min
Cost of cellular local call
US cents / 3 min off peak
ICT Reform indicators
a. Regulation: Existence of independent regulatory agency
b. Ownership: Existence of private capitalc. Market structure- Local phone monopoly- Digital mobile monopoly- Long distance monopoly- Leased lines monopoly- Internet service provider monopoly

624
182
442
2
237
31
YES
YES
NO
NO
NO
NO
NO

Source: Estache, A. and AnaGoicoechea, 2005. A “Research” Database on Infrastructure Economic
Performance,” World Bank Policy Research Working Paper 3643, June 2005.

Our assessment for each sub sector is summarized in the following sections:
Roads and Rail: Although the proportion of paved roads far exceeds world averageand those for lower middle and upper middle income countries, it is seen that road andrail densities in terms of population and in terms of land are significantly lower,suggesting further scope for expanding the road and rail network. The road and rail
projects being planned under the 9th Malaysia Plan (2006-2010) are discussed in
Section 8 of this report. There is widespread participation by the private sector as tollroad concessionaires under the ‘Build-Operate-Transfer’ mode of privatization.

14

Electricity: It is noted that more than 95% of the population in the country has accessto electricity compared to the world average of 60% and 82% for lower middle income
and 87% for upper middle income countries. Following the ‘brown-outs’ in the early
1990s, the ‘First Generation” independent power producers (IPPs) followed by the“Second” and “Third” Generation IPPs have added a total of 6,850 MV of new
generation capacity in addition to the 7,022 MW planted up by the national electricity
company (Tenaga Nasional Berhad) since 1990. The participation by these IPPs is
described in greater detail in Section 4.3.1.
Presently, the country’s electricity reserve margin is reported to be around 40%. The
next IPP is scheduled to come on-stream in 2008. In terms of regulation, there exists
an independent regulatory agency (Energy Commission). Private participation andcompetition are currently confined to the generation market. The distribution market
remains a monopoly under the incumbent national electricity company. Interestingly,
the company has divested one of its coal-powered generation plants to the private
sector.
With the enactment of the 5th Fuel Policy in 2001 to optimize fuel diversification mix
and reduce over-dependence on a single fuel (crude oil), there exists a vast scope topromote renewable energy as the fifth fuel, particularly biomass, biogas, municipal
waste, solar and mini hydro. Other sources currently receiving much attention in theprivate sector is the production of palm oil diesel and hydrogen fuel.
Water and Sewerage: Although the population has high access to improved water
sources and improved sanitation, the sector is confronted with multiple challenges ofmeeting the rising demand for potable water and sustainable management of water
resources. Under the 8th Malaysia Plan, there were 129 water supply projects
identified for implementation with a total allocation of RM4 billion. For the 2000-2050
period, a total of 62 major water supply projects have been identified with total
expenditure estimated at RM52 billion. Three water crises have added greater urgency
to the need to enhance water management and waste disposal in the country. They are
the 1990 water crisis in the state of Melaka in which the Tunggal Dam dried up, theSelangor water crisis of 1998 where about 1.8 million people were affected by watersupply disruptions and the 2005 crisis in Negeri Sembilan (Seremban area) and Johor(Kluang areas) which experienced water shortage and rationing.
Besides high physical loss, with non-revenue water ranging from 20% to 60% insome Malaysian states and the unequal distribution of water resources between waterrich states (Pahang, Terengganu, Kelantan, Perak and Sarawak) and water thirsty

15states (Penang, Melaka, Selangor and Negeri Sembilan), there is a need to promotebetter water resource development and management and inter-state transfer.
Some states such as Penang and Selangor have proceeded with the privatization of
the water utilities. Except for Penang, the water utility company has to face thechallenge of high capital funding requirements and low tariffs that result incommercial losses and unsustainable return on investment.
Given that control over the management of water resources was vested in theindividual states, amendments to the Constitution were made in January 2005 tomove the water supply services from the State List to the Concurrent List. The
proposed Water Services Industry Bill and National Water Services Commission Billare in the process of being enacted in the Parliament to streamline the legislative andregulatory framework for the management of the country's water resources.
Telecommunications: Although mainlines teledensity is below world average andthat of the upper middle income countries, cellular subscribers at 442 per 1000 people
far exceeds the world average of 296 as well as the average of 381 for upper middle
income countries. However, not shown in the table, is country’s low broadband
penetration rate where the ‘last mile’ connection to homes is around 1%. Fortunately,
the strong growth and rapid penetration of mobile telephony has placed the 3
dominant telecommunications companies in a strong financial position to introduce
new technologies for increasing broadband penetration such as wireless (WIFI),
Wireless Microwave Access (WIMAX) and 3G.

16

3.

PUBLIC SECTOR ROLE IN INFRASTRUCTURE PROJECTDEVELOPMENT

3.1 Main Policy Initiatives, Regulations and Legislations for Infrastructure Development
Privatisation as a National Policy
The Government first announced privatization as a national policy in 1983.
Representing a new approach in the national development policy, it complemented
other national policies such as the Malaysia Incorporated policy that were aimed atachieving the following objectives:• facilitate private sector-led growth of the economy• relieve Government’s financial and administration burden• reduce Government’s presence in the economy• trim both the level and scope of public spending and to allow market forces to govern
economic activities and improve efficiency and productivity in line with the National
Development Policy.
• promote active participation by Bumiputeras in corporate sector to correct
imbalances in wealth distribution and corporate sector participation.
The privatization policy was incorporated into the framework for national
development (ie. 5th Malaysia Plan, 1986-1990). In 1985 the Guidelines on
Privatisation was published that spelt out the objectives, methods and implementation
machinery. In 1987, work begun on the Privatisation Masterplan. The Master Plan
explained the implementation of the policy as well as the progress achieved andaddressed the future direction of the programme. Completed in 1991, the plan
identified 176 state-owned enterprises valued at RM13.1 billion and involving 155,000
employees to be privatized over the next 5 years and another 70 SOEs valued at RM3.2
billion and involving 42,000 employees in the longer term. By end 2003, there were 474
privatized projects.
Listed in Table 9 are the projects and entities that were privatized in the early years.

17

Table 9. Privatised Infrastructure Projects and Entities
SectorTransport

Infrastructure-related
Government Entity andProjects Privatized
North Klang Straits Bypass
Jalan Kuching/Kepong Interchange
Kuala Lumpur Interchanges
North-South Highway
Labuan-Beaufort Interconnection
Klang Container Terminal

Port

(1)
(2)
(3)
(4)
(5)
(1)

Water Supply(2) Lumut Dockyard(3) Sabah Shipyard(1) Semenyih Dam(2) Maintenance of Tube Wells

Telecommunications
Power
Source: Yeah (1993)

(3)
(4)
(1)
(2)

Larut Matang Water Supply
Ipoh Water Supply
Syarikat Telekom Malaysia Berhad
Postal Services Department(1) Tenaga Malaysia Berhad (TNB)

Method
BOT
BOT
BOT
BOT
BOT
Lease + Saleof Asset
Corporatisation
Sale of equity
Management
contract
Management
contract
BOT
BOT
Sale of equity
Corporatisation
Sale of equity
Sale of equity

Year
1983
1985
1987
1988
1988
1986
1991
1991
1987
1988
1989
1989
1990
1992
1995
1992

Privatization can be implemented by several methods as follows:• Sale• Lease• Management Contract• Build• Build-Operate-Transfer (BOT)• Build-Operate-Own• Build-Operate• Build-Lease-Transfer• Land Development/Land Swap
• Management Buy Out
Either a single method or a combination of methods may be chosen depending on the
merits of each case. The choice of methods will be considered case by case. As a generalrule, however, the method which results in the maximum practicable degree of private
sector involvement will be aimed for. Comparatively, the sale method is expected tosatisfy this criterion. In addition, the methods used reflect the requirements ofnational objectives and the constraints in each case.
The privatization strategies that were pursued include:18

• Emphasizing projects which have high multiplier effects and which stimulate
economic growth;• Strengthening and streamlining the implementation process to ensure theeffectiveness of the privatization programme;• Ensuring that privatized projects are commercially viable and contribute to social
well-being;• Strengthening the regulatory authorities to protect consumer interests and foster
the healthy development of privatized sectors;• Enhancing Bumiputera participation through vendor schemes and provision of
better access to capital; and• Promoting wider public participation in privatized entities through public listing
which concurrently enables infrastructure project companies to raise tap the equity
market for capital funds.
In order to facilitate the implementation of privatization programme, theGovernment has amended a number of laws such as Pension Act 1980,
Telecommunication Act 1950, Port Act 1963, and Electricity Act 1949. The sector
regulations that were introduced to facilitate privatization and deregulation aresummarized in Table 10.

19

Table 10. Changes in the Regulatory Framework to Promote Private Participationin Infrastructure Development by Sector
SectorRoad

Railways
Ports

Airports

Regulatory Agency
Public roads are regulated by theRoad Transport Department(Ministry of Transport)
Privatized roads are regulatedby the Malaysian Highway
Authority under the Ministry ofWorks.
Railways Department (Ministryof Transport)
Corporatized ports are regulatedby the respective Ports
Commission (e.g. Johor Port
Authority, Bintulu Port Authority,
Klang Port Authority etc.)
Federal ports are regulated by
the Ministry of Transport.
Civil Aviation Department,
Ministry of Transport

Communications
and Multimedia

Communications and Multimedia
Commission

Electricity Supply

Energy Commission

Water Supply

Water Supply Department,
Water Board, PWD

Legislation
Road Transport Act, 1987

Railways Act 1991 andRailways (Successor
Company) Act 1991
Ports Authorities Act
1963, Ports Act(Privatization), 1990, andthe various port
commission acts for each
port
Civil Aviation Act, 1969;
Landing, Parking andHousing, Passenger
Services and Air
Navigation Facility
Charges (and)Regulations 1992.
Communications andMultimedia Act 1998

Energy Commission Act
2001, Electricity Supply
Act 1990, Electricity
Supply (Successor
Company) Act 1990

Water Supply Act, andstate legislations.

Type of Regulation
Price regulation (toll rates) by
Ministry of Works.
Commercial vehicle licensing(entry) by Commercial Vehicle
Licensing Board, Ministry of
Entrepreneurial Development
Price regulation (fare rates) by
Ministry of Transport
Price regulation by port
commission

Price regulation by Ministry ofTransport

Price regulation and Competition
regulation – CMC advises the
Ministry of Energy,
Communications andMultimedia.
Entry is regulated via licensing.
Regulation of wholesale prices
via agreements between IPPs
and Tenaga Nasional Berhad(incumbent distributing
company).
Retail tariffs regulated by
Ministry of Energy,
Communications andMultimedia.
For privatized supplier prices are
regulated by concessionagreements.

Water Services Industry
Bill (drafting stage)
Water Services
Commission Bill (draftingstage)
Source: Adapted from Cassey Lee (2004)

3.2 Involvement of Government-linked Companies and their Objectives
There are 40 Government-Linked Corporations (GLCs) listed on the Stock Exchange
in Malaysia which account for around 30% of market capitalisation and under 10% of20country's GDP. The largest GLCs operate in the infrastructure segments such as
Telekom Malaysia (Telco) and Tenaga Nasional (Electricity). The government either
directly or indirectly influences policy and major decisions in these GLCs throughfederal agencies such as Employee's Provident Fund (EPF).
Since 2004, the GLCs have undergone a re-vamp and one of the main developmentsfrom this plan of action was the placement of 30 GLCs under the management of
Khazanah Nasional Bhd which is the official investment body of the Government. The
most influential and active GLCs are under this Khazanah umbrella of which theorganizational structure (and corresponding interest holdings of each) pertaining to
infrastructure and utilities are presented in Table 11.
Table 11. Investment Holdings of GLCs under Khazanah Nasional Berhad
SectorTransportation

Property/Construction

Communications

Power
Conglomerate

Company (% shareholding)
Penerbangan Malaysia (100%), MAS (69.34%), Malaysia
Airport (72.74%), PLUS Expressways (26.34%), Westport(8.55%), ParkMay (24.85%)
STLR (100%), UDA Holdings (50.01%), Tradewinds Hotels &Resorts (25.67%), Putrajaya Holdings (15.59%), Ho Hup(17.2%), Opus International (62.37%), UEM Builders (51.7%)
Telekom Malaysia (40.1%), Sunshare Investments (20%),
Mobile One Ltd (29.85%), PT Excel comindo (16.81%), Pos
Malaysia (30.27%), Time DotCom (30.04%), TimeEngineering (45.03%)
Tenaga Nasional (36.96%), Northern Utility (20%), SWEC
(12%)
DRB-Hicom (10.38%), UEM (100%), UEM World (50.81%)

Source: Khazanah Nasional Bhd

GLCs play an integral role in infrastructure development in the country as the mainsponsor or off-taker for these projects. They are responsible for a substantial share ofactivity in the key industries of the Malaysian economy. In the power segment, Tenaga
Nasional Berhad (TNB) as the national electricity company has entered into
Purchasing Power Agreements (PPAs) with the Independent Power Producers (IPPs).
The PPA specifies the terms of amount of supply and the rate at which the electricity
generated by these IPPs are taken up by TNB as its distributor. Thus, by having these
GLCs as the off-takers for the majority of projects, there is an added security featureembedded into the project structure.
Another interesting point to mention is that many of the infrastructure projects inthe past have been awarded to GLC construction companies. Thus, this method of21

nomination for infrastructure projects without a competitive or open tender process
has come under much scrutiny. Nowadays, the process of tendering for infrastructure
projects has been more regulated and more open to the participation of private entities.
However, there are still some uncertainties surrounding the tender process withrespect to the prices to which the tender is awarded. There is sentiment in the market
that prices tend to be inflated which would have efficiency implications on theeconomy.
Conversely, projects carried out by GLCs could also be seen as a sign of stability andsecurity for investors as these companies have the institutional backing of theGovernment and companies have a long, credible track record for completing theseprojects up to standard.
The Government policy has been very supportive of the incumbents in the utilities
sector that were once Government-run entities and this trend has prevailed in mostindustries like Telecommunications and Energy. There is continuity and stability inthese industries which form the backbone of the economy. However, anothermotivation behind many projects especially in the case of privatization activities in thepast stem from a profit motive standpoint. There is substantial GLC activity ininfrastructure due to the financial benefits that can be reaped from carrying out theseprojects.
There has been some re-structuring of GLCs in recent years (as mentioned above) inorder to create a more arms-length relationship structure between the Federal
Government and GLCs. Some of these measures are listed below:• Newly appointed management tapped from the private sector• Introduction of market-based KPIs to ensure efficiency in operation• Introduction of performance-linked management contracts• Stronger emphasis on Corporate Governance and the subsequent removal of GLC
regulators from the Board of Directors of the GLCs.
Public entities are expected to remain important players in the financing,development and delivery of infrastructure projects and with the on-going reforms andhigher emphasis on efficiency in these organizations, the stability of these entities may
prove a way in which Malaysia will be able to access a higher proportion of externalfinancing in these infrastructure projects.

223.3 Assessment of Public Sector Participation and Government Policy Stance towards
Infrastructure Projects
As evidenced by the aggressive process of privatization to accelerate thedevelopment of new infrastructure and high budgetary allocation for infrastructuredevelopment, it is clear that policy makers view infrastructure projects as a key
development tool from an economic, social and political perspective as elaborated
below.
Economic and fiscal dimensions: Although several privatized projects and entities,
notably the Kuala Lumpur Light Rail Transit, national sewerage company (Indah
Water Konsortium), had to be rescued following the Asian financial crisis, thegovernment's strong emphasis on private sector participation in infrastructuredevelopment is unlikely to diminish due to:• consistency with national development policy thrust on private sector-led growth.
• stronger and more efficient implementation capacity of the private sector comparedto the public sector.
• government funding constraints due to the need to reduce the fiscal deficit that is
now entering the 10th year in 2007 since the sharp rise in public spending to counterthe 1998 recession following the outbreak of the Asian financial crisis.
• surplus financial position of NFPEs and government-linked companies that places
them in a strong position to undertake infrastructure projects identified bythemselves or by the government.
Socio-political dimension: Due to the high value and capital-intensive nature of
infrastructure projects, they have become a useful means to help fulfill thegovernment’s social and political agenda of raising Bumiputera equity ownership andfostering an industrial and commercial community amongst them.
Following two decades of privatization experience, the earlier aggressive policy
stance is now moderated by emerging concerns over the costs of privatization andpublic objections over the manner in which the projects and concessions had been
awarded previously. These concerns and the manner they are being addressed are
discussed below.
• Competitive bidding: An attempt is being made by the new administration under thepresent Prime Minister to institute competitive bidding or open tender forgovernment projects and contracts.

23• Tariff setting: This remains a contentious and politicized issue due to commitments
written into the concession agreements that allow for scheduled increases in tariffs;
otherwise the government has to pay compensation to the operator or concessionaire.
Attempts are now being made by the government to re-negotiate these terms
particularly for toll road concessions and the power purchase agreements of the IPPs.
It is seen that in some concessions especially for toll roads and electricity generation
there is unequal sharing of demand risk and a more equitable way of sharing thisrisk needs to be designed.
• Negotiation skills: In the early years of the privatization push, the government
provided generous direct and indirect support to ensure the commercial success ofthe privatized projects. Moving up the learning curve, the government has become
more skillful in negotiating more favorable contracts that shift more risks to theprivate developers. There are however some remaining concerns over the lack of
capacity and the absence of a systematic framework or method to quantify thefinancial obligations arising from the risks borne by the government.
• Risk management: The extent of government’s exposure to the completed, new andplanned privatization projects needs to be assessed and an appropriate risk
management system established to manage the contingent liabilities and optimize
the allocation of resources. A ballooning of contingent liabilities will result in market
uncertainty over the fiscal health of the government. A difficult-to-assess area is thecost of implicit guarantees for large infrastructure projects. These include lobbying
for the participation of private institutions in projects considered to be strategic to
the government. Such signal of strong implicit commitment has helped to facilitate
financing by private and government-linked institutions. The optimal balance in risk
sharing between the private and public sectors is still evolving and it is imperativethat the right balance is established for infrastructure development to be expandedwith the continuing participation of the private sector.

24

4.

FINANCING METHODS FOR INFRASTRUCTURE PROJECTS

4.1 Overview of Financing Methods Available for Infrastructure Projects
The Generic Case
Project Financing refers to the financing of long-term infrastructure projects usuallyin the realm of public utilities. Funding is based on a financial composition thatinvolves both equity and debt, structured in a way in which potential cash flow fromthe project will be used to repay the commitments to the external sources of financing.
Special Purpose Vehicles (SPVs) are created for the purpose of the project where assets,
along with the revenue generating source are used to secure the project’s viability.
Financial institutions such as investment banks, trustees and rating agencies form
part of the intermediaries network that enables this relatively complex financing
initiative to come together cohesively.
Such is the nature of project financing and the inherent risks involved in thisfinancing segment, that ways to diversify risks amongst various parties is necessary inthe structure. Moreover, with the sharing out of risk, the corresponding share of profit
must also be factored in.
A generic project financing scheme consists of equity investors known as sponsors
and a syndicate of banks that provide loans to the project. The most common type ofbank loan used in this situation is a non-recourse loan which is secured by the projectand paid from the project's cash flow. Finally, risk-mitigating characteristics are also
taken into consideration in the financing structure, which can be incorporated throughthe utilisation of corporate finance, options, securitisation and insurance provisions
amongst others.
Project bond financing, in particular has gained prominence as a viable andprofitable method for raising project finance since the 1990s, especially after the Asianfinancial crisis where many affected countries in the region naturally turned to thebond market for a means to fund their projects, given the lack of opportunities
available in the equity capital market and banking sector. However, banks still remaina natural source of financing for these projects, especially in the case of specialized
development banks.

25

In terms of Government involvement and assistance, various grants are awarded in
the use of constructing infrastructure, especially in cases where the Government aims
to develop a new industrial area. Infrastructure has always been an imperative area ofthe country's development aims and thus a considerable proportion of the annual
budget and public spending in the 5- year development plans is allocated for thispurpose. Thus, it is observed that numerous public-private partnership projects arebeing set up for this purpose.
The following provides an overview of the various sources of financing available toinfrastructure project finance.
Internal Funds
Internally generated funds are seen as the most straightforward method of obtaining
project financing if available. Internal funds or ‘capital already owned by theorganisation’ can be utilised without any negative effects on stock market prices andgearing commitments if a loan was to be taken. The use of internal funds can be seen
as a ‘signal’ to competitors and other players in the market of the commitment thecompany has towards the particular project. However, as noted before, internal funds
must only be used if the company is able to use this element in its balance sheets (i.e.
ensure that prior debt commitments are taken care of etc). Internal funds are mostcommonly coupled with another form of financing such as equity or debt, which will be
described below.
Equity FinanceIn this case, the investors comprise mostly the parties directly or indirectly involvedin the project, stock market proceeds (if public listed), institutional investors andinvestment funds. The equity investment represents a capital stake in the project andthus a share in profits (or losses) in the venture. Usually projects are financed with a
combination of debt and equity, with a higher equity composition in the project
financing where the risk involved is higher.
Below are the major private infrastructure projects from the early 1990s to thepresent that have accessed the equity and debt capital markets for their financing
needs. As shown in Table 12, the majority of these projects fall under thetelecommunications sector. Current project financing activities are focused on thewater sector.

26

Table 12. Major Privatised Projects and Entities

1990

Telco

Telekom Malaysia

Divesture

Stock
Exchange
Local & Int’l

1994

Telco

Digi Telecomm. Bhd

Greenfield

Local & Int’l

100%

1994

Telco

Maxis Comm. Bhd

Greenfield

Local

100%

1994

Telco

Greenfield

Local

32%

1992

EnergyGreenfield

Local

n/a

1995

EnergyTime dotcom
Tenaga Nasional Bhd.
(TNB)
Petronas Gas Sdn Bhd

Divesture

Local

25%

1991

Transport

Jalan Cheras

Divesture

Local

100%

1995

Transport

Concession

Local

n/a

Concession

Local

n/a

Concession

Local

100%

Divesture

Local

35%

Year

SectorProject Name

Activity

Jalan Pahang
New East-West Link
1995
Transport
Expressway
2000
Water
Johor Water Supply
Perbadanan Bekalan Air
2002
Water
Pulau Pinang Sdn Bhd
Source: PPI Database, World Bank

PrivateOwnership38%

Debt FinanceThis type of financing refers to the case when the borrower borrows a certain amounton which they must repay with additional interest payments to make up for the timevalue of money. This form of financing can be obtained from banks, insurancecompanies (and other institutional investors) or the debt capital market. In this case,the lender does not ‘own’ a part of the project (as opposed to an equity investor) andthus does not share in the upside or downside in the operation of the potential project.
Bonds
These financial instruments are interest-bearing (usually long-term) obligations
issued to investors. They are characterised by a coupon rate and maturity date towhich the bond is redeemed by the issuer. There is a public bond market where they
are issued. If sold to institutional investors, these sales are deemed as private
placements. Bonds, in some cases, are a more attractive means of debt financing thanthe conventional bank loan as they are a source of longer term funds and have better
commercial terms.
Corporate Bank Loans
Usually, the banking institution to which the infrastructure company turns to willbe the first resort in seeking a loan for a project as the bank would already be familiar
with the company’s activities and would be more willing to lend to them. However,27

financial appraisal and credit worthiness of the corporate borrower will still have to beassessed in any case. Large-scale infrastructure projects have been financed withdomestic savings intermediated through the banking system. Corporate bank loans
work most efficiently in a country where there is a high quantum of domestic savings
and where the financial systems are predominantly market-based.
Grants
These are direct financial assistance provided mainly by government agencies anddevelopment finance institutions. They are a type of directed funding where the use offunds is very specific. These are used mainly for bigger development objectives of theparty providing the grant. They can be used as a way to mitigate risk in undertaking aparticular venture and also to assist in covering capital costs. It is important that theawarding of these grants to industry players does not distort the market in any way.
Government Budgets
Infrastructure projects have traditionally been financed by the Government due totheir “public goods” nature (i.e. with marginal social benefits of the provision of thegood or service exceeding the corresponding marginal social costs), thus it has always
been accepted from a social viewpoint for public provision. Moreover, the innatecharacteristics relating to infrastructure projects (such as their long gestation periods,
high incremental capital output ratios (ICORs), low returns and irregularity of capital),
make infrastructure projects somewhat unattractive to private investors, unlesssufficient steps in mitigating financial risks are taken. However, the task of financing
these large-scale projects has not surprisingly added a considerable amount of fiscal
stress on the government budget due to privatization and the advent of Private
Financing Initiatives (PFI) to meet the country’s infrastructure requirements.
Development Financial Institutions (DFIs)
DFIs such as the World Bank, Asian Development Bank and Japan Bank ofInternational Cooperation (JBIC) have been actively involved in infrastructuredevelopment around the world, with JBIC taking the lead in terms of infrastructure
financing by value in the Asia and Pacific region as at end-20031. JBIC, in particular,
has been integral in enabling high profile projects in Malaysia and in countries aroundthe region to materialize. One such example of this is JBIC’s involvement in the Shah
Alam Expressway project which was tendered in the early 1990s. The process and the1

Global Development Finance – Harnessing Cyclical Gains for Development, 2004 – World Bank28

way that it was designed to promote private sector involvement was devised by JBIC.
Its structure was so innovative as to not even require the utilization of a Government
soft loan in its initial funding. Besides initiatives to develop funding mechanisms indeveloping countries, DFIs also provide essential sources of direct financing schemesin the form of loans and guarantees for infrastructure projects. This is the main form of
DFI support that has been successfully employed in Malaysia.
4.2 Financing Features of Infrastructure Bonds
Most infrastructure financings in recent years have taken the form of project
financing bonds. This is due to the very nature of raising funds for infrastructure
where they are project-based (purpose-built asset), centered on a specific activity orobjective with a limited project life-span. With regards to the project life-span, usually
projects of this nature require long-term financing and thus the debt market is a rational
avenue for this as bank loan terms are unable to match the longer period of financingthat a long tenure bond is able to provide. Besides the long tenure, banks are also
constrained by prudential rules on single customer limit and concentration risk given
the large funding size that is typical of capital-intensive infrastructure projects.
A project bond differs from a conventional corporate bond by certain legal andfinancial characteristics. With a project bond, the issue is used to finance a specificcapital investment project which utilizes potential cash flows as the source of debt
servicing; whereas a typical corporate bond is issued to raise funds for the generalbusiness activity or across the board expansion, where the issue is secured against thefirm’s general status of credit and underlying assets (which act as an implicit
mechanism for diversification of risks for the investor). Risk is mitigated in a projectbond issuance through effective allocation of repayment obligation to parties who are
best suited to managing this risk (as illustrated below for a generic contractual
framework for a project bond).

29

Figure 3. Project Financing - Contractual Framework
Government

Purchase
Off Taker/Users

Agreement/Revenue

Project
Company

StreamConstruction
Lenders/Investors

Contract

Financing

Contractor

Agreements

Insurers

Insurance

SupplyPolicies

Agreement

Operation &MaintenanceSuppliers

Operator

Agreement

As observed in the above diagram, there are very conspicuous features of an
infrastructure project bond issue and the way that the whole project is set up for the
purpose of this issue. All the related parties in the project have a specific role purposein the project structure and the nomination of the all these major participating parties
is extremely significant in the project's overall success or failure. One very distinct
feature of this kind of issue is the presence of an off-taker which will be thecommissioning body of the finished infrastructure. It represents the institutional
demand or original rationale for the project. This adds an element of certainty to thistype of funding structure as the cash flows are relatively secure for obligors. On theother hand, the contractors and suppliers supporting the construction of the projectneed to be strong parties too as they are responsible for the completion of therevenue-generating source; without which, the purchase agreements would not be able
to function and take effect.

30

Figure 4. Project Financing - Cash Flow Ring Fencing
PROJECT COMPANY

Escrow A/c

Revenue A/cFinancingOperational
Cash Flows

Contractors,
O&M Admin,
Overheads

Operational
A/c

Debt Service

etc

Debt Service
Reserve A/c

MaintenanceReserve A/c

Fulfillment of
Financial
Covenants

Shareholders

The above diagram is a generic overview of the financing structure of a project andthe various account entities which are utilized for their specific purposes. This is
another distinct feature of a project financing scheme, that is, the ‘cash flow ring
fencing’ arrangement. It enables a clear allocation of funds to their specific purpose
which acts as a safeguard to satisfy the broad range of project expenses and financing
repayments.
Besides the above, another defining feature of these types of bonds is that there is an
explicit amount of time where the debt servicing component/revenue generating source
will not be generating any cash flow. Typically, this is from the time of implementationof the project to the time of its completion. Even then, there is a period of time whendebt repayments are scheduled to start, which could be quite a substantial period oftime after the entity begins operations which is known as the ‘ramp up period’. Thiscase is seen mostly in toll road projects which have seen slow consumer uptake rates
when first introduced into the market.

31

Lastly, infrastructure financing through bond issuance is more suited to projects
with well-defined and certain cash flows and a bond market environment that is
relatively stable. This characteristic can be enhanced by securing a contract with acredible (preferably state-owned) off-taker or making more conservative revenue
projections in the case of toll road projects. Bond project financing also works well inmarkets characterized by little or absence of market and price competition andrelatively inelastic demand. Thus, a less suitable market environment would becharacterized by one which is highly dynamic and constantly changing through theadvent of new technology (akin to the Telco industry) where continuous capital
expenditure is required to keep abreast with changing trends. That is why the highly
capital intensive utilities sector continues to be such an important part of the
Malaysian bond market due to its relative stability and adherence to thecharacteristics that make it ideal for bond financing.
4.3 Description of ‘Landmark” Infrastructure Project Bonds by Category
This section aims to illustrate the main features of infrastructure project financing(with emphasis on financing through bond issuance) through the use of identified'landmark' deals in each sector. These deals will serve to exemplify how theinfrastructure bond financing environment has changed over time and what theunique aspects of these structures are for the individual infrastructure sub-sectors. A
detailed list of infrastructure bond issues can be found in the Appendix IV2.
4.3.1 Power Sector
Since the signing of the first Power Purchase Agreement (PPA) in 1993 between themain off-taker, Tenaga Nasional Bhd (TNB) and the independent power producer(IPP), YTL Power Generation, IPPs have become a key segment of the country’s
electricity generation industry. The first batch of PPAs signed are referred to as theFirst Generation IPPs which enjoyed favourable payment terms in their PPAs. The
average tariff of these First Generation entities was 15.5sen/kWh which remains thehighest average over all the subsequent generations of IPPs in Malaysia.
The key features of the project and financing structure are described for the selected
representative of each generation of IPP.

2

The details of these ‘Landmark’ projects found in Section 4.3 are derived from official RAM
Rationale documents and interviews with key Ratings Infrastructure analysts.

32

I. YTL Power Generation - 1st Generation IPP
Instruments
Issue Value (RM)
Ratings
Maturity Date
Coupon Rate
Lead Arranger
Trustee

Security

Fixed Rate Facility(1993/2008)
RM1.5 billion
AA 1 [Reaffirmed]
14 November 2008
10% per annum payablesemi-annually in arrears on 30 Juneand 31 December
Commerce International MerchantBankers Berhad
Alliance Merchant Bank BerhadFirst fixed and floating charge over
all assets, accounts andundertakings of the Company, theassignment of all rights under the
principal commercial agreements ofthe project and the assignment of
insurance proceeds

Medium-Term Notes Programme(2003/2014)
RM1.3 billion
AA 1 [Assigned]
6 - 11 years from the issue date
Floating rate
Aseambankers Malaysia Berhad
Mayban Trustees Berhad
Unsecured

Project Background
Under the PPA signed with TNB on 31 March 1993, YTLPG is to sell electricalenergy exclusively to TNB for a period of 21 years from 30 September 1994, i.e. thedate of commissioning of the first generating unit. Currently operating as base-load
plants, both the Paka and Pasir Gudang power plants utilize combined-cycle gas
turbine technology to generate electricity. Comprising 2 combined-cycle blocks for
Paka and another one for Pasir Gudang, the power plants have a combined nominal
capacity of 1,212 MW. Each block consists of 2 Siemens V94.2 gas turbines, 2
single-pressure heat-recovery boilers and 1 steam turbine.
Both power plants were completed ahead of schedule, with the first gas turbine
generating unit successfully commissioned on 30 September 1994, i.e. 6 months aheadof the scheduled deadline. The last combined-cycle blocks in Pasir Gudang and Paka
were commissioned on 23 September and 15 October 1995, respectively, andsubsequently handed over to YTLPG in December 1995, some 11 months ahead ofschedule. Construction of the power plants was awarded to a consortium comprising
Siemens Aktiengesellschaft (“Siemens”) from Germany and Syarikat Pembenaan Yeoh
Tiong Lay Sdn Bhd, under a fixed-price lump sum turnkey contract, for approximately
RM2.6 billion. The project did not incur any cost overruns.
Gas for the power plants is supplied by Petroliam Nasional Berhad (“Petronas”)
under the Gas Supply Agreement (“GSA”) signed on 15 March 1993. The GSA, which
will expire on 30 September 2015, is designed to match the expiry of the PPA.
Meanwhile, operations and maintenance (“O&M”) of the power plants are carried out
by YTL Power Services Sdn Bhd (“YTLPS”), a wholly owned subsidiary of YTL Corp.

33

The combined-cycle gas turbine technology utilised by the power plants is well-proven,while the Siemens V94.2 gas turbines have been widely used since 1984. Both power
plants have been running smoothly since the commencement of the combined-cycle
operations in late 1995, with availability and heat rates (among other operating
performance indicators) closely matching the expected levels.
The total funding requirements of the project (including construction, development
cost, capital expenditure and interest during construction) came up to about RM3.7
billion. Funding needs were met by a combination of the bond, RM1.16 billion worth offloating-rate bank borrowings, equity in the form of RM60.00 million ordinary shares
and RM240.00 million preference shares, as well as operational cash flow of RM778.00
million generated during the open-cycle phase of operations. Since its listing on the
KLSE in 1997, YTLPI has advanced a total of RM1.16 billion to YTLPG for therefinancing of the latter's floating-rate bank loans.
The MTNs are to be used for the repayment of shareholder advances (RM400
million), and the repayment of commercial borrowings (RM900 million). The
commercial borrowings comprising RM900 million of revolving credit facilities weredrawn down to repay shareholder advances of a corresponding amount. This
refinancing exercise forms part of the YTL Group’s policy of ensuring that its
respective subsidiaries manage their own debts and do not have to rely on the parent,
which in this case is YTLPI. The facility is expected to have maturity dates ranging
from 6 to 11 years from the issue date, with issue amounts ranging between RM200
million and RM300 million.
Financial Covenants and Credit Enhancement Mechanisms
YTLPG’s debt-servicing ability has remained strong due to its robust cashflow thathas been supported by its PPA. Backed by a strong operating cashflow of RM549
million in FY June 2006, its DSCRs (with and without cash balances) remained
resilient at 2.08 times and 1.59 times, respectively. The Company also has a soundliquidity profile, supported by healthy profit accumulation and a larger cash balance of
RM188.29 million as at end-June 2006. Looking forward, we expect YTLPG tomaintain its stable operating cash flow of RM400 million - RM500 million a year, while
its projected DSCR (without cash) is envisaged to remain in line with historical levels,
i.e. at above 1 time.
Dividend payments by YTLPG are subject to distribution covenants under the bonds,
therefore providing some comfort to bondholders. Before any distribution can be made34

to YTLPG’s shareholders, the Company must first comply with the following
distribution covenants:(i)

DSCR of at least 1.30 times before distribution.

(ii) A minimum Loan-Life Cover Ratio of 1.40 times at all times.
(iii) The balance in the Debt Service Reserve Account must not be less than the greaterof RM77 million or an amount equivalent to the next 7 months’ interest payments.
While the MTN does not have similar financial covenants, YTLPG is nonethelessexpected to maintain a minimum DSCR of at least 1.25 times before declaring or
payingany

dividendor

distribution

to

its

shareholders,

or

prior

to

repaying/redeeming/repurchasing any shares.
II. GB3 Sdn Bhd – “2nd Generation IPP”
The second generation of IPPs experienced downward pressure on the tariffs
specified in their PPAs, due to a move to establish a more competitive payment
structure. Average rates for this generation of IPPs were within the range of 10
sen/kWh and 12 sen/kWh. Furthermore, more stringent requirements were imposed onthese IPPs in order for them to claim full Capacity Payments (CPs) from the off-taker.

Instruments
Ratings
Maturity Date
Profit Margins
Lead Arranger
Trustee

Security

RM850 million Senior
Secured Al-Bai Bithaman Ajil Bond
Facility (2001/2014)

RM350 million Senior
Secured Al-MurabahahCommercial
Papers/Medium-Term Notes Facility(2001/2008)
P1/AA2 [Reaffirmed]
20 February 2009
Floating rate

AA2 [Reaffirmed]
19 December 2014
Between 6.50% and8.00% per annum
Aseambankers Malaysia Berhad
Aseambankers Malaysia Berhadand Citibank Berhadand Citibank Berhad
Malaysian Trustees Berhad
Malaysian Trustees Berhad(i) Charge over the project site.
(ii) An assignment of the Security Accounts.
(iii) An assignment of all contractual rights of theborrower under the Project
Agreements.
(iv) An assignment of all applicable insurances.
(v) An assignment of the rights of the Borrower under any performance andwarranty bonds and performance guarantees issued in favour of the
Borrower.
(vi) Step-in-rights and notice of assignment pursuant to theabove-mentioned assignments.
(vii) The Sponsor’s pledge of the shares it holds in the Borrower.

35

Project Details
GB3’s power plant facility is constructed on approximately 66,000 m2 of land, next tothe existing SEV power plant in Lumut. The facility, which is actually divided into 2
phases, consists of an open-cycle phase (430 MW) which was commissioned in
December 2001, and a combined-cycle phase which increased the plant's nominal
capacity to 640 MW. The construction and installation of the facility had been awarded
to Alstom Power Asia Pacific Sdn Bhd (“Alstom”) under a RM1.108 billion fixed-priceturnkey EPC contract executed on 10 October 2000. Alstom had been engaged toconstruct the facility and also the interconnection facility, which connects the plant to
the national grid.
Although GB3 is among the second-generation IPPs built on a fast-track basis, theaccelerated progress is only applicable to its OCGTs (i.e. the first 3 gas turbines). The
construction period for the entire facility (up to the CCGT), which had earlier been
anticipated to take 30 months, i.e. until end-January 2003, was completed 2 1/2
months ahead of schedule, i.e. mid-November 2002. A 30-month construction period
would have been in line with other comparable CCGT plants such as SEV; this had
allowed a commissioning and testing period of about 2 months prior to the Scheduled
Commercial Operations Date (“SCOD”) in January 2003. The RM1.38 billion
construction cost of the project had been about 4.2% lower than the initial budget of
RM1.44 billion. The cost savings had largely stemmed from GB3’s significant buffer
against contingencies, as well as reduced financing expenses (e.g. legal fees and debt
arrangement fees).
GB3’s PPA is the key document governing the underlying strength of its cash flow.
Apart from spelling out the formula for power tariff calculation, it also clearlydelineates all the terms and conditions to be met by GB3 in maximising tariff claims
from TNB, the sole purchaser of its generating capacity and electrical energy. GB3
earns Capacity Payments (CPs) by ensuring the dependable capacity and availabilityof the power plant to TNB, and Energy Payments (EPs) by selling electricity to TNB.
The CPs are structured to cover GB3’s fixed operating costs and debt service, and toprovide a reasonable rate of return to its shareholders. The CP structure in the PPA
effectively protects GB3 against electricity demand risk. On the other hand, the EPs
will cover actual fuel costs and variable operating costs associated with electricity
generation.
As with the other second-generation IPPs such as Prai Power, TTPC and Pahlawan,
the performance standards required under GB3’s PPA to claim full CPs are more
stringent compared to the first-generation PPAs. Similar to other second-generation

36

IPPs, GB3’s CPs are calculated on a daily basis as opposed to monthly calculations forthe first-generation IPPs. Under the PPA, GB3 will receive full CPs if its actual Daily
Available Capacity (“DAC”) equals or exceeds the planned DAC. The plant would alsoneed to maintain an Unscheduled Outage Limit (“UOL”) of not more than 4% per year
to ensure full CPs. The CPs will be adjusted downwards by the fraction of the actual
over planned DAC in the event the UOL exceeds 4%, but is still less than 6%. An
additional penalty will imposed if the UOL exceeds 6%.
Financial Covenants & Credit Enhancement Mechanisms
Certain financial covenants that are in place to protect bondholders’ interests asfollows:•

GB3 must maintain a debt-to-equity ratio of 90:10 at all times;•

The Company must maintain a minimum FSCR of 1.25 times at all times;•

GB3 cannot extend any loan or credit, save for a maximum of RM1 million for staff
loans;•

Dividends can only be paid if GB3 meets the FSCR of 1.25 times after payment of
the same;•

The finance service reserve account must always maintain a balance that is
sufficient for all scheduled repayments of the PDS vis-a-vis the succeeding 6-month
period.
Financial covenants allow GB3 to make hefty interest payments on Redeemable

Unsecured Loan Stock.
Teknik Janakuasa Sdn Bhd (“TJSB”), the O&M operator for GB3, has a very
reputable track record. Furthermore, TJSB provides the following guarantees to GB3,
as shown in the table below :-37

Guarantees

Requirements as
per PPA

Unplanned Outage
Rate (UOR)

UOL1=4%
UOL=6%

Availability Target

91.5% over a 3-year
block
640MW

Tested Annual
available capacity
Guaranteed heat rate

As per schedule withcorresponding loadfactorAmount ofperformance
guarantee
RM 1.1Million per 1%
deviation, up to UOR of 6%
RM 2.2Million per 1%
deviation from UOR of 7% to
UOR of 10%
RM1 Million per 1% deviation
up to a deviation limit of 4%
RM1 Million per 1%
deviation, up to a deviation
limit of 8%
Additional fuel cost incurred
above the values set out in
the PPA will be sharedequally between GB3 and
TJSB, up to a limit of RM4.4
Million for TJSB.

Maximum
reimbursable amount(capped)Max
Reimbursableamount (RM mil)
11

4
8
4.4

20

III. Jimah Energy Ventures – “3rd Generation IPP”
The most recent generation of IPPs can be considered as having more innovative
PPA structures with respect to their financing structure. In these PPAs, the principleof demand risk sharing is introduced into the contracts. This involves the condition
whereby only the portion of Capacity Payments relating to debt service will be
guaranteed by the off-taker as opposed to the entire amount.

Instruments
Ratings
Maturity Date
Profit Margins

Lead Arrangers
Trustee

Security

Senior Islamic Medium-Term Notes
Junior Debt of up to RM895 million
Facility (“Senior IMTN”) of up to
RM4.85 billion
AA3(s) [Assigned]
Not rated
1.5 - 16.5 years from date of
Not ratedissuance
Ranging from 7.25% to 9.85% per
30% per annum beginning 31 July
annum
2009
RHB Sakura Merchant Bankers Berhad;Bank Muamalat Malaysia Bhd;
Malaysian International Merchant Bankers Berhad;
AmMerchant Bank Berhad
Babcock & Brown Asia Pacific (Financial Advisor)
Mayban Trustees Berhad(i) Assignment over the Lease Agreement signed between JEV and Jalur
Jernih Sdn Bhd (“Jalur Jernih”), and a first fixed charge over JEV’sshares.
(ii) Jalur Jernih (upon the acquisition of the latter).
(iii) A first-ranking debenture comprising fixed and floating charges over allpresent and future assets of JEV.
(iv) Assignment (by way of security) of all JEV’s rights, titles and interests
under the Project Documents, insurance, all permits and licences,liquidated damages and performance bonds/guarantees.

38

Project Background
JEV’s financial requirements during the construction period will be met by a
combination of funds from shareholders, external debts and other sources. The funding
for the entire project is estimated to come up to RM6.14 billion, some 61% of which
comprises the construction cost of the power plant.
Table 13. Sources and Applications of Funds
Sources of Funds
Equity – ordinary shares
Junior Debt
Senior IMTN Programme
TWA Payment from TNB
Interest Earnings fromunutilized Senior IMTN
proceeds

Total

RM’0005,000
890,799
4,837,096
390,000
20,566

Application of Funds
Construction Cost
TWA Works
Land Acquisition
Sales Tax and importduties on equipment

RM’0003,751,704
390,000
100,000
55,000Insurance

92,518Other pre-operating
expensesFinancing-related
expenses
Construction
Contingency and generalcontingency sum
Coal and Oil inventory
Senior IMTN coupon
payments during
construction

275,607

6,143,462

Total

139,033
101,82975,303
1,162,469

6,143,462

JEV will issue RM4.84 billion of Senior IMTN. Concurrently, JEV will also issue
RM891 million of Junior Debt, to be subscribed by a trust-held, special-purpose
company known as Special Power Vehicle Berhad (“SPV”). The SPV will issue up to
RM800 million of Class A Islamic Medium-Term Notes and up to RM215 million ofClass B Islamic Medium- Term Notes to subscribe to JEV’s Junior Debt. The proceedsfrom the issuance of the RM4.84 billion Senior IMTN will fund 84% of the total
development cost of the power project, while the proceeds from the RM891 million
Junior Debt and common equity of RM5 million will finance the remaining 16% of therequirements. An adequate level of equity contribution during the construction phaseof a project is important as it signifies the shareholders’ commitment towards seeing
the project to its successful completion. As mentioned, 16% of the project's funding is
raised by SPV (mostly via the issuance of the Class A IMTN), which has no connection
to the project sponsors. Given that the terms of the Class A IMTN contain moredebt-like features, the project’s debt-to-equity ratio stands at 96:4, which is deemed
aggressive compared to the more conventional 80:20 structure.

39

Figure 5. Financing Structure

Senior IMTN
comprising RM4,190
Fixed Rate MTN and
RM647 Million Floating
Rate Notes

Project Sponsors

Proceeds
RM215 Million
SPV Class B
IMTN (Junior)

Proceeds

Proceeds
SPV

RM891M Junior Debt
issued to SPV

RM800 Million
SPV Class A

JEV(Project Company)

Finance 1,400 MW
coal-fired power plant
and related facilities

Financial Covenants and Credit Enhancement Mechanisms
JEV is viewed to have strong project economics, with a strong cash-generating
ability underscored by favourable tariff rates under its power purchase agreement(“PPA”), in addition to its fixed-price, lump-sum turnkey Engineering, Procurement &Construction (EPC) contract. Fuel-supply risk is also well mitigated via the provisionsof the Coal Supply and Transportation Agreement (“CSTA”) while operating risk isdeemed low, aided by experienced personnel and the expertise of Connell Wagner PPI(“CWPPI”) through a Technical Support Agreement (“TSA”). The presence of these
agreements serves to tighten the contractual obligations of the various parties in thisproject.
The Junior Debt is governed under the following terms and conditions, which
enhance the credit profile of the Senior IMTN:(i)

The Junior Debt ranks second in terms of cash flow priority and security.

(ii) The Junior Debt shall not receive any profit payment and/or principal repayment
if the requirements of the Financial Service Reserve Account (“FSRA”) for the
Senior IMTN, Maintenance Reserve Account (“MRA”) and Debt-Equity (“DE”)
ratio have not been met.

40

(iii) The Junior Debt holders shall not be able to declare an Event of Default (“EOD”)
ahead of the Senior IMTN holders. However, in circumstances where the Senior
IMTN holders declare an EOD in respect of JEV, it shall constitute a cross-default
on the Junior Debt.
(iv) The Junior Debt shall not receive any profit payment and/or principal repayment
if the Finance Service Coverage Ratio (“FSCR”) for the Senior IMTN falls below
1.4 times before and after such payments are made.
In addition to the terms of the Junior Debt, the financing terms of the Senior IMTN
contain the following standard covenants to strengthen JEV’s debt-servicing quality:(i)

FSRA covering the next 6 months' debt service of the Senior IMTN (both principal
and profit payments). The FSRA will be fully funded at all times and will besupported by TNB during the first 13 years of the COD, via the TNB SBLC.

(ii) RM24 million MRA to be built up over a period of 3 years from the commercial
operations of Unit 1.
(iii) Payment of dividends, advances and repayment of Junior Debt obligations to be
subject to an FSCR test of 1.4 times, on a post-payment basis.
(iv) Maximum DE ratio of 85:15.
Table 14. Designated Accounts of JEV to Ensure Proper Cash Flow Discipline
Accounts
Senior IMTN Escrow Account

Uses
Payment to the Project Bank Account subject tomaintaining the D/E Ratio of 85:15

Project Bank Account

Repayment of bridging facility of up to RM300
Million prior to the issuance of the Senior IMTN,
payment of all capital expenditure, contingency
amounts, principal and profit payments of the
Senior IMTN as well as payment into the FSRA,MRA, TA and OA.

Financial Service Reserve AccountPayment of principal and profit for the Senior IMTN

Maintenance Reserve AccountPayment of maintenance expenses for the ProjectTransmission Works Agreement

Payment for all works under the TWA

Operating AccountPayment of capital expenditure, operating andmaintenance, taxes, duties and capital
improvements in respect of the Project

Performance Guarantee AccountReimburse EPC contractor if rectification of failure
is made (during warranty period).

41

IV. Mukah Power Generation Sdn Bhd - Islamic FinanceInstruments
Ratings
Maturity Date
Profit Margins
Lead Arranger
Trustee

Security

Senior Sukuk Mudharabah
Junior Sukuk Mudharabah
Programme of up to RM665 million
Programme of up to RM285 million(2006/2021)(2006/2031)
AA3 [Assigned]
A2 [Assigned]
Up to 15 years from the date of first
Up to 25 years from the date of firstissuance
issuance
7.55% - 8.65% per annum, payable
12.00% - 168.50% per annum,
semiannually
payable semiannually
RHB ISLAMIC Bank Berhad
Amanah Raya Berhad(i) Assignment of all of MPG’s rights, titles and interests under the Project
Documents, insurance policies as well as all permits and licences.
(ii) A letter of undertaking from MPG for the assignment of all of MPG’srights, benefits and titles under any supplementary agreements that
may arise from the Project Documents.
(iii) Memorandum of First Legal Charge over the Designated Accounts andassignment of MPG’s rights, benefits and titles to any money in thecredit balance of the Designated Accounts.
(iv) First-ranking debenture creating fixed and floating charges over MPG’spresent and future assets.

Project Background
The purpose of the Senior Sukuk and Junior Sukuk is to finance partly theconstruction of a 270-MW coal-fired power plant together with related ancillaryfacilities, profit payments during the construction period and the first profit payment
upon completion of the plant, pre-operating expenses as well as other project costs.
Financing Structure
Mukah Power Generation (MPG) will issue the RM665 million Senior Sukuk and
RM210 million of the Junior Sukuk to fund a respective 76% and 24% of the total
project-development cost. The balance will be financed via shareholders' funds(ordinary shares) and interest income during construction. The Junior Sukuk will be
subscribed to by Sarawak Power Generation (SPG), as part of Sarawak Enterprise
Corporation Berhad's (SECB’s) equity contribution to the Project. On the other hand,
SPG will issue RM215 million of Serial Sukuk Musyarakah to part-finance thesubscription of MPG’s Junior Sukuk. The Junior Sukuk facility allows MPG to issue up
to RM285 million (additional RM75 million) as an additional liquidity buffer to caterfor unforeseen cost overruns as well as to cover profit payments in the event of a delay
in completion. The subscription of this remaining portion of MPG’s Junior Sukuk will
be funded by a separate cash reserve in SPG, which will be built up over 2 years, i.e.
upon the scheduled completion of the Project.
The RM75 million cash reserve in SPG will be fully funded. Should the remaining
RM75 million Junior Sukuk be issued by MPG, its profit and principal repayments will42

only commence after the final maturity of the initial RM210 million Junior Sukuk.
Details of the sources and uses of funds are presented in Table 15.
Table 15. Sources and Applications of Funds
Sources of Funds

Value (RM million)

Equity – ordinary shares

2.0

Senior Sukuk proceeds

Value (RM million)
667.33665.00

EPC for Non-Plant Zone

36.1

Junior Sukuk proceeds

210.00Land Acquisition

2.00

Permitted Investment
Income0.13

Advisory & Insurance

4.00

Pre-operating expenses

11.00

Project Management &
Admin

7.00

Field investigations

1.20

Issuance Expenses

1.60

Financing Cost during
construction

103.71

Initial Funding Senior
Sukuk Debt Reserve

27.01

Contingency
Total

16.18
877.13Total

3Application of Funds
EPC3 for Plant Zone

877.13Engineering, Procurement & Construction

43

Figure 6. Financing Structure
SECB

RM2 Million Ordinary
Shares

RM210 Million

100%

100%

RM210 Million Junior Sukuk

Sarawak Power

Mukah Power Gen

RM75 Million

Gen Sdn Bhd

RM75 Million undrawn Junior Sukuk

RM215 Million

RM215 Million
Sukuk Musyarakah

RM665 Million

RM665 Million
Senior Sukuk

Investors/Bond

Investors/Bond

Holders

Holders

Financing Covenants and Credit Enhancement Mechanisms
The following are some of the terms and conditions of the Junior Sukuk that would
help strengthen the credit position of the Senior Sukuk issue:(i)

The principal redemption of the Junior Sukuk will only commence after the
Senior Sukuk has been fully paid off.

(ii)

The Junior Sukuk will only receive profit payments after the obligations of the
Senior Sukuk and the requirements of the Sukuk Payment Account (“SPA”) havebeen fully met. MPG is required to maintain a minimum SPA balance that isequivalent to the Senior Sukuk’s principal and profit payments over the next 6
months, so long as the Senior Sukuk remains outstanding.

(iii) The Junior Sukuk ranks second in terms of cash flow priority and security. It
serves as a loss-absorption piece to the Senior Sukuk, i.e. it would bear the brunt
should there be any shortfall in MPG’s cashflow.
(iv) The Junior Sukuk is not supported by any debt service reserve account.
(v)

The Junior Sukukholder (i.e. SPG) shall not declare an Event Of Default (EOD)
ahead of the Senior Sukukholders. However, in circumstances where the Senior

44

Sukukholders declare an EOD in respect of MPG, it shall constitute across-default on the Junior Sukuk.
(vi) Failure on MPG’s part (due to insufficient cash flow) to meet the Junior Sukuk’s
profit payments does not constitute an EOD, and such payment obligations are
non-cumulative.
(vii) The Junior Sukuk will be subscribed by SPG as part of SECB’s equity
contribution to the Project. SPG will also undertake to retain full ownership of
the Junior Sukuk during the construction period of the plant.
In addition to the terms of the Junior Sukuk, the financing terms of the Senior
Sukuk contain the following standard covenants to strengthen MPG’s debt servicing
quality:(i)

Payment of dividends and advances to shareholders to be subjected to:•

An SSCR test of 1.6 times on a post-payment basis (during the tenure of the
Senior Sukuk).

•

A Junior SSCR test of 1.3 times on a post-payment basis (during the period
post-payment of the Senior Sukuk).

•

Maintaining the minimum SPA balance requirement.

(ii) Creation of several designated accounts to ensure proper cashflow discipline.
However, the financing terms do not stipulate the maintenance of a certain
debt-to-equity ratio in MPG’s capital structure prior to the distribution ofdividends and advances to shareholders.
4.3.2 Water Sector
The water sector has historically encountered a high level of fragmentation
attributable to the decentralised approach of water supply in the country, that is, witheach state responsible for its own water supply activities. In order to improve the stateof water supply distribution in the country, the Government awarded the privatisationof the Selangor water distribution system to Syarikat Bekalan Air Selangor Sdn Bhd(SYABAS) in 2003; which is the primary off-taker for the different water
concessionaires around the country.

45

Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (“SPLASH”)
Instruments
Ratings
Maturity Date
Interest Rates
Lead Arranger
Trustee

Security

RM1,407 million Al-Bai Bithaman Ajil RM435 million Floating Rate Notes
Debt Securities Issuance Facility(2000/2006) (“FRN”)(2000/2016) (“BaIDS”)
AA3
AA3/P1
10 series maturing between 7 and72 months from 21 November 2000
16 years from 19 January 2000
3.50% - 8.25% per annum
Floating
Commerce International Merchant Bankers Berhad
Malaysian Trustees Berhad
1) First fixed and floating charge over SPLASH’s assets.
2) A charge over the Operating Account, Debt Service Reserve Account,
BaIDS Escrow Account and monies standing to the credit of SPLASH.
3) SPLASH’s contractual rights under the project agreements.
4) An assignment of insurance policies.
5) An assignment of the performance and warranty bonds and performance
guarantees issued in favour of SPLASH, subject to the rights andinterests of the Selangor State Government under the Privatisation
Agreement.

Project Background
SPLASH is a single-purpose company established to undertake the privatisation of
the operation and maintenance (“O&M”) of the existing Phase 1 water-treatment
facilities in Bukit Badong, Selangor (“SSP1”), as well as the construction and O&M of
Phase 3 of the Sungai Selangor water-supply scheme (“SSP3”). The said projects
involve the treatment of raw water as well as the supply and sale of treated water tothe SSG for a period of 30 years, commencing 24 January 2000 (“the effective date”),
which coincides with the signing of the PA between the abovementioned parties. The
construction of the Project, costing RM2.146 billion vis-a-vis the cost of the engineering,procurement and construction contract, had been carried out by a joint-venturecompany formed by Gamuda (70%), KDEB (15%) and TSWA (15%), also known as“GTKJV”.
On 24 September 2003, the Government awarded the privatisation of the Selangor(including the Federal Territories of Kuala Lumpur and Putrajaya) water distribution
system to Syarikat Bekalan Air Selangor Sdn Bhd (SYABAS) in which the Federal
Government has a Golden share in. SYABAS is thus the primary off-taker of SPLASH.
SPLASH is protected from demand risk by virtue of the fixed capacity charges(“CCs”) it earns regardless of the quantity of water supplied. Moreover, SPLASH is not
subject to any performance standards in qualifying for full CC payments. However,they are required to meet the quantity of water demanded by its sole-offtaker SYABAS- within the quality standards set out in the Privatisation Agreement; in return it will
earn supply charges (“SCs”).

46

Financing Structure
The entire project is budgeted at RM2.9 billion along with additional expenses
during construction. These, in addition to the construction work and land-related
expenses, will be financed via a combination of debt, equity and internal funds. The
debt portion will comprise the Al-Bai Bithaman Ajil Debt Securities (“BaIDS”) BaIDS
and Floating Rate Notes, while the equity component will be met by the ordinary
shares as well as the Redeemable Unsecured Loan Stock issued to the shareholders.
Part of the project will also be supported by funds generated from the operations of
SPLASH, notably water supply from SSP1.
Table 16. Sources and Applications of Funds
Sources of Funds
Internally
Generated Cash

RM Million

Application of Funds

RM Million

841

Construction Cost

2,146

474

Start-up Expenses

90

1,635

Land & ReSettlement Costs

190

EquityExternal Debt

524
Interest during
Construction
Total

2,950

Total

2,950

As at end-June 2003, the total cost incurred for the project amounted to RM2 billion.
This has primarily been met by the further drawdown of the BaIDS (from the escrowaccount) and FRN, which collectively amounted to RM1,460 million. The rest of the
project cost has been met by funds from the shareholders (in the form of ordinary
shares and Redeemable Unsecured Loan Stock) and, to a lesser extent, collections fromthe State Government. The disbursement of funds from the State Government was
slow to begin with and as a result, SPLASH faced considerable financial difficulty in2003 especially. This led to SPLASH seeking alternative sources of funding as aninterim measure. The alternative form of funding came from a RM180 million
revolving credit facility (“RC”) from several banks.
Since the restructuring of the Selangor water industry in 2004, SPLASH’s liquidity
position has improved; as at end-FY March 2006, the company's collection andpayment cycles came up to around 90 days and 21 days, respectively. This is a
substantial improvement from the previous high of 594 days (receivables) and 671
days (payables). The healthier payment trend, as well as the settlement of a portion of
SPLASH’s old receivables, had allowed the company to pare down its debts andpayables.

47

Financial Covenants and Credit Enhancement Mechanisms
Although the dividend payments and interest on SPLASH’s redeemable unsecured
loan stock (“RULS”) are subordinated to and subject to the distribution covenants
under the BaIDS, the Company's covenants are less stringent than those of the otherproject-financed issues. While most of these transactions have to meet apost-distribution DSCR requirement - thus guaranteeing a certain level of debt
coverage subsequent to any distributions to shareholders - SPLASH’s structure does
not provide for such a condition. In this respect, given the Company’s strong project
economics, robust cash flow profile and improved liquidity position, SPLASH is in thefinancial capacity to meet these covenants and make distributions. Nevertheless,
SPLASH’s yearly operating cashflow is believed to sufficiently cover its annual debt.
As Capacity Charges (CCs) are earned regardless of the quantity of water requested
by its sole off taker, i.e. SYABAS, SPLASH is insulated against fluctuations in demand.
The CCs have been structured to cover debt servicing, overheads and a portion of O&M
costs (not covered by SCs) as well as to provide a reasonable rate of return toshareholders. Moreover, unlike independent power producers, which will only earn full
capacity payments upon meeting the operational requirements under their powerpurchase agreements, SPLASH’s PA does not have such stipulations in order to earn
full CCs. The stable and predictable CCs that are earned regardless of the quantum ofwater supplied acts as a credit enhancement mechanism for the SPLASH structure.

48

4.3.3 Transport - Toll Road Sector
Projek Lebuhraya Utara-Selatan Berhad (“PLUS”)
Instruments
Ratings
Maturity Date
Profit Margins
Lead Arranger
Trustee

Security

RM5.10 billion Bai Bithaman Ajil
Islamic Debt Securities
AAA [Reaffirmed]
Between 1 and 15 years from 31
May 2002
Between 3.4% and 7.5%
RHB Sakura Merchant Bankers
Berhad; Dallah Albaraka (M)Holdings Sdn Bhd; KAF Discounts
Bhd; Bank Mualamat (M) Bhd
Universal Trustee (M) Berhad
An assignment and charge over the
Toll Amounts, Credit Balances andall project accounts ; an assignmentof the rights over the Concession,
Construction Guarantees (otherthan the Performance Bonds),
Construction Contracts andInsurance; a debenture over the
fixed and floating assets of PLUS;
an assignment over PLUS’s rights,
titles and interests in the Additional
Project Agreements; and an
assignment (ranking second after
the Government) over the
Performance Bonds and the
Performance Bonds Proceeds
Account.

RM2.26 billion Bai Bithaman Ajil
Islamic Debt Securities
AAA [Reaffirmed]
Between 8.5 and 14 years from 20
December 2002
Not Applicable
RHB Sakura Merchant Bankers
BerhadAssignment over not more than
RM400 million of the excess cash
flow proceeds per calendar year, as
specified by the auditors in respectof the period commencing 1 January
2011 to 31 December 2015, andRM260 million for the period
commencing 1 January 2016 to 31
December 2016 (“the Charged
Amounts”); and a charge over the
security account into which theCharged Amounts will be deposited.

Project Background
PLUS is a single-purpose company established on 27 June 1986, to undertake thepart-construction, operation and maintenance of the Expressways. It is the highway
concessionaire for the 772.0-km North-South Expressway (“NSE”), the 34.8-km New
Klang Valley Expressway (“NKVE”), the 15.9-km Federal Highway Route 2 between
Subang and Klang, and the 22.75-km Seremban-Port Dickson Highway (“SPDH”)(collectively known as “the Expressways”).
The Concession Agreement (“CA”) for the Expressways had been originally awarded
to PLUS’s intermediate holding company, United Engineers (Malaysia) Bhd (“UEM”),
which subsequently novated it to PLUS on 20 July 1988. The Expressways have been
fully operational since February 1994. Besides collecting toll from the Expressways’
users, PLUS also generates revenue from certain ancillary facilities such as billboard
advertising and leasing of land to petrol stations as well as renting out food andbeverage stalls in the rest and service areas.

49

The CA had been originally awarded for a period of 30 years, commencing 31 May
1988 (being the date on which the CA came into effect) and expiring on 31 May 2018.
In 1999, however, the Government agreed to extend the concession period for a further
12 years to 31 May 2030, via a Supplemental Concession Agreement (“SCA”) inked on
8 July 1999. The extension had been to compensate PLUS for the overall reduction inagreed toll rates under the revised tariff structure so that the Company’s net earnings
would not be affected. Additionally, the SCA had also established a toll-sharing
formula between PLUS and the Government, for any toll revenue exceeding theannual thresholds set out in the SCA.
Financial Covenants and Credit Enhancement Mechanisms
Notwithstanding PLUS’s robust cash-generating ability, it is also important toensure that the Company’s healthy cash flow is properly applied to meet all its
financial obligations. The establishment of a financial ‘waterfall’ (as seen below),
detailing the priority of payments, provides the necessary financial discipline on PLUS.
The covenants require the Company, among others:•

To maintain a minimum FSCR of at least 2.75 at all times.

•

Not to incur any further debts or give any guarantees other than its existing debts,
the unsecured RM3.0 million Bank-Guaranteed Facility and unsecured RM5.0
million Trade Facilities (currently within the limit of the RM50.0 million Overdraft
Facility), and any additional subordinated debt from the Government.

•

No declaration or payment of dividends if the FSCR is less than 3.0 times.
Figure 7. Cash Flow Waterfall - Priority of Payments
Toll Revenue AccountDisbursement AccountOperating Costs, Taxes & Capital
Expenditure
Repayment of BaIDS & other existing
Debt + Funding of the BaIDS, FSRA &MRA
Repayment of BBA Serial Bonds
Repayment of Govt Support Loan
Repayment of trade facilities
Distribution to Shareholders

50

In addition to the financial covenants above, the cash flow-monitoring structures inplace for the BaIDS and BBA Serial Bonds are also satisfactory on a credit perspective.
The Company is also obligated to set aside a 1-year finance service payable andprojected capital expenditures for the Finance Service Reserve Account (“FSRA”) andMaintenance Reserve Account (“MRA”), respectively, for the BaIDS. The presence of
these accounts provide further comfort about PLUS’s ability to weather any short-term
liquidity shocks which may impair its ability to service its debts or carry on the normal
course of its business.
Following the successful completion of PLUS’s debt-restructuring exercise in May
2002, the Company’s erstwhile crippling debts of RM16.48 billion were reduced to
RM7.22 billion as at 31 December 2002. In addition to PLUS’s cleaner
post-restructuring balance sheet, the exercise had also addressed the issue ofinter-company loans that had previously been a concern.
Subsequently, PLUS issued the BBA Serial Bonds in December 2002 to refinance its
obligations under its RM3.82 billion Nominal Value Unsecured Zero Coupon Serial
Bonds (“Linkbonds”), in order to realise significant interest cost savings. In general,
both the debt-restructuring and refinancing exercises resulted in vastly superior debt
service coverage ratios (“DSCRs”) for the Company.
This restructuring exercise also saw the lengthening of PLUS’s debt repayment
tenure to 15 years via the BaIDS, further boosting its debt-servicing ability.
Furthermore, the refinancing exercise for the Linkbonds has also resulted in sizeableinterest savings for PLUS of up to RM1.5 billion. In FY 2002 itself, PLUS’s financing
costs were trimmed by RM261.5 million to RM496.0 million.
Expressway Lingkaran Tengah Sdn Bhd (ELITE)
Instrument
RatingMaturity Date
Profit Margins
Lead Arranger
Trustee

Security

RM800 million Al-Bai Bithaman Ajil Islamic Debt Securities (2003/2015)
AA2 [Upgraded]
10 tranches maturing between 28 February 2006 and 27 February 2015
Between 5.5% and 8.0% per annum, payable semiannually
Amanah Short Deposits Berhad
Universal Trustee (M) Berhad(i) An assignment and charge over the toll amounts, credit balances and all
project accounts (excluding cash belonging to Projek Lebuhraya
Utara-Selatan Bhd).
(ii) An assignment of all of ELITE’s rights, interests, titles and benefits inand to the Concession Agreement, Supplemental Concession
Agreement, Second Supplemental Concession Agreement and Project
Documents.
(iii) A debenture over the fixed and floating assets of ELITE.
(iv) An assignment over all the relevant insurance policies taken up by
ELITE.
(v) An assignment (ranking second after the Government of Malaysia overthe Performance Bonds and the Performance Bonds Proceeds Account.

51

Project Background
ELITE is a single-purpose vehicle established on 24 August 1994, to undertake theconstruction as well as the operation and maintenance (“O&M”) of the 48-km
North-South Expressway Central Link (NSECL). The Concession Agreement (“CA”)
had originally been awarded to ELITE’s parent company, United Engineers (M)Berhad, which subsequently novated it to ELITE on 27 January 1995.
The NSECL serves as a primary link between northern Klang Valley and KLIA. The
expressway, which operates through a “closed” tolling system (i.e. Vehicles are charged
according to the distance traveled), had been opened in 2 phases; the firstnorthern-most 9.8 km on 16 December 1996, with the remaining 38 km on 16 October
1997. The project was completed at a cost of around RM1.4 billion.
Financing Structure
In 1995, ELITE raised RM840 million comprising its RM440 million Notes Issue
Facility (“Notes”) and RM400 million Bonds Issue Facility (“Bonds”) to fund theconstruction work on the NSECL. Subsequently, in 1997, ELITE obtained a RM100
million bridging loan facility (“BL”) from the former Bank Bumiputra (M) Berhad, tofinance the construction of the Additional Expressway. However, due to economic
pressures, ELITE missed its interest payments in July 1999, resulting in a downgradeof the ratings for the Notes and Bonds, to D.
ELITE’s problems at that point were a result of several factors that can be traced
back to the Asian financial crisis in 1997/98. The delay in the opening of KLIA due tothe economic downturn, and the subsequent shifting of some of the domestic flightsfrom KLIA back to Subang Airport, resulted in weaker traffic volumes than initiallyprojected. Further aggravating ELITE’s precarious financial position then were thehigh interest rates that eroded its cash resources - interest expense on its floating rate
obligations jumped by almost RM25 million in 1998.
When the Notes and Bonds were downgraded to D in July 1999, ELITE was granted
indulgence by its lenders to enable the Company to sort out its cash flow problems.
Finally, through a deal brokered by the Corporate Debt Restructuring Committee,
ELITE finalised its Debt Settlement Scheme (DSS) in March 2002. In this DSS, ELITE
proposed a refinancing exercise to repay the entire RM1,050.43 million via theissuance of the proposed RM800 million BaIDS and the RM300 million Additional
Government Loan (AGL) granted to ELITE as part of the compensation for the52

proposed revamp of the Company’s toll rate structure under a revised Concession
Agreement.
The Government’s approval of the RM300 million AGL, inter alia, is a condition
precedent to the drawdown of the proposed RM800 million BaIDS. After the settlementof the entire RM1,050.43 million debt, ELITE will have an excess of RM30.30 million RM27.90 will be deposited into the FSRA, and the remaining RM2.40 million into the
Revenue Account for operations and/or capital expenditure (“capex”) requirements.
Financial Covenants and Credit Enhancement Mechanisms
The covenants imposed under ELITE’s financing structure are among the moststringent for project finance cases in Malaysia. The main covenants found in the
ELITE financing structure are as follows:(i)Minimum finance service cover ratio of at least 1.5 times throughout the tenure of
the Bonds.

(ii) ELITE shall not declare or pay out any dividend or make any other distribution in
or in respect of its share capital.
(iii) ELITE will not incur, assume, guarantee or permit to exist any debt except for its
debt under the Bonds and the RM300 million loan from the Government of
Malaysia.
(iv) ELITE must ensure that the cash balance in its Finance Service Reserve Accountis equivalent to the next 6 months’ principal and profit obligations at all times.
Figure 8. Cash Flow Waterfall - Priority of Payments to BaIDS holders
Revenue AccountPayment of Fees arising from BaIDS
Additional Operating
Account
Funding of FSRA

Operating Costs, Capex & taxes
Payment of Interest on additional
Govt Loans
Early Redemption of the BaIDS
Permitted Investments

53One of the primary factors that caused ELITE to default on its financial obligations
back in July 1999 was the floating interest rates on the Notes, which skyrocketed to
18% on two occasions, in 1997 and 1998. However, with the fixed-rate nature of the
BaIDS, interest rate risk eliminated.
Besides the financial covenants restricting the outflow of cash to shareholders, theproposed BaIDS are also structured with a 6-month FSRA. The presence of such an
account provides further comfort on the Company’s ability to weather any short-term
liquidity shocks.
In terms of risks, toll rate revision risk has always been recognized as one of the
major operating risk factors faced by all toll concessionaires in Malaysia. However, thisconcern has now been largely laid to rest with the signing of the Third Supplemental
Concession Agreement (SCA), as the quantum of increase for the New Toll Rate ismore reasonable compared to the previously proposed toll rate increases. Furthermore,
the Government has been highly supportive of Toll operations and has agreed togazette ELITE’s New Toll Rate over the entire concession period. Currently, all tollrate hikes have to be approved by the Government prior to the implementation of eachscheduled increase. This means that ELITE will be able to automatically raise toll
rates on the scheduled dates without having to seek the Government’s approval eachtime. The Government has also agreed to compensate ELITE for the loss of revenue
beginning 1 January 2002 until the implementation date of the New Toll Rate.

54

4.3.4 Educational Facilities
Encorp Systembilt Sdn Bhd

Instrument

RatingMaturity Date

RM1,321.60
million Al-Bai
Bithaman Ajil
Notes
Issuance
Facility(2000/2018)“Tranche 1”
AA2(s)The notes areissued in 32
series of
RM41.3 mileach, maturing
every 6 mths
from 3 July
2002. The lastseries will
mature on 3
Jan 2018.

RM510 million
Al-BaiBithaman Ajil
Notes
Issuance
Facility(2000/2018)“Tranche 2”
AA2(s)The notes areissued in 34
series of RM15
mil each,maturing every
6 mths from 15
Mar 2002. The
last series will
mature in Sept
2018.

RM250 million
Al-Bai Bithaman
Ajil Notes
Issuance Facility(2002/2028)“Tranche 3”
AA2(s)
Series 1: RM30
mil in 2007
Series 2: RM30
mil in 2012
Series 3: RM30
mil in 2017
Series 4: RM70
mil - amortised in
5 equal annual
instalments from2018 to 2022
Series 5: RM90
mil – amortised in
6 equal annual
instalments from2023 to 2028

Proposed
RM683.30 million
nominal Al-Bai
Bithaman Ajil
Notes Issuance
Facility(2004/2028)“Tranche 4”
AA2(s)The notes will be
redeemed
annually from theth
15 anniversary of
issuance date.
Series 1 to 5:
RM68.33 million
each
Series 6 to 7:
RM102.495
million each
Series 8:
RM136.66 million
each
UOB (Malaysia)
Bhd

Lead Arranger

Deutsche Bank

TrusteePB Trustee Services Bhd

Security:
Tranche 1
1) Assignment of concession payments for 6,094 units and associated additional works
on 6,094 units under Stages 2 and 3 of the Privatisation Agreement (“PA”).
2) Assignment of the corporate completion guarantee for Stages 1, 2 and 3 from
Leighton Holdings (Australia) Limited, the Main Contractors.
3) Assignment by Encorp Construct Sdn Bhd (“ECSB”) of the completion guarantee,
amounting to 9% of the outstanding construction contract sum for 6,094 units
under Stages 2 and 3, from Leighton Contractors Malaysia Sdn Bhd (“LCMSB”)
and backed by Malayan Banking Berhad.
4) Charge and assignment of the Tranche 1 Escrow Account under Stages 2 and 3.
Tranche 2
1) Assignment of concession payments for 2,800 units under Stage 1 of the PA.
2) Charge and assignment of the Tranche 2 Escrow Account under Stage 1.
3) Assignment of the construction contracts by ECSB in relation to Stage 1.

554) Assignment by ECSB of any security granted in relation to Stage 1 of theprivatisation project by the contractors, with the exception of those already granted
to the noteholders of the RM1,321.6 million Al- Bai Bithaman Ajil Notes (“ABBA”)
and the RM250.0 million ABBA.
Tranche 3
1) Assignment of concession payments for 1,106 units under Stages 2 and 3, theassociated additional works for 1,106 units and additional works for 2,800 units
under Stage 1 of the PA.
2) Assignment of the corporate completion guarantee for Stages 1, 2 and 3 from
Leighton Holdings (Australia) Limited.
3) Assignment by ECSB of the completion guarantee, amounting to 9% of theconstruction contract sum for 1,106 units under Stages 2 and 3, from LCMSB andbacked by Malayan Banking Berhad.
4) Charge and assignment of the Tranche 3 Escrow Account.
Tranche 4
1) Assignment of concession payments for the respective 6,094 and 2,800 units
currently under Tranches 1 and 2.
2) Charge and assignment of Tranche 4 Escrow Account.
Project Background
Encorp Systembilt Sdn Bhd (ESSB) is the concessionaire for the privatisation of
10,000 units of teachers’ quarters throughout the country, based on thebuild-and-transfer concept. Under the 30-year concession, ESSB is to design, finance,
construct and deliver 10,000 units of teachers' quarters to the Government of Malaysia(“GOM”). In return, the GOM would make monthly payments to ESSB throughout theconcession period, starting from the month following the certification of practicalcompletion of each cluster of the teachers’ quarters. The main contractors of thisproject are Leighton Contractors Malaysia Sdn Bhd (“LCMSB”).

56

Financing Structure
Figure 9. Cash Flow Diagram for Al-Bai Bithaman Ajil (ABBA) Facilities
Initial Payment
Guarantee
Government of
Malaysia

Encorp Systembilt
Sdn Bhd
Advance Payment
of RM125M

Monthly Payments under PA

Payment of trustee
fees, rating fees,
financial expenses tomanagers, construction
management andguarantee expenses,
and legal fees

Proceeds fromnotes issuance
Investors

Amortise serial notes issued

Escrow
Account

Trustee

Consultant &Architect

Construction
Progress
Payments toContractors

The transaction structure for each of the ABBA facilities can be split into 2 periods,
namely pre-completion (i.e. during construction period) and post-completion (i.e. after
completion and handover of the teachers’ quarters to the GOM).
Pre-Completion
Proceeds from the ABBA facilities are deposited into an Escrow Account, which has
been pledged to the noteholders as security. The Escrow Account is at Public Bank
Berhad (rated AAA/P1 by RAM) and is managed by the Trustee, who is also the solesignatory of the account. The Trustee can only withdraw money from the Escrow
Account for the payment of: (1) construction progress payments, construction
management and guarantee expenses to the relevant contractors; (2) financial
expenses to the managers; (3) trustee fees; (4) rating fees; (5) legal fees; (6) redemptionof the ABBA facilities; (7) regulatory fees and (8) reporting accountant fees.
Withdrawals from the Escrow Account for construction progress payments to therespective

contractors

can

only

be

made

upon

architect/independent consultant, NRY Architects Sdn Bhd.

57

certification

by

the

Post-Completion
Upon the completion and handover of each cluster of the teachers’ quarters to theGOM, monthly concession payments via cheques from the GOM shall be paid directly
into the respective Escrow Accounts. The Trustee shall also withdraw money from theEscrow Account to redeem the ABBA facilities in accordance with the redemption
schedule, or to pay the principal and profit obligations pertaining to the ABBA
facilities and to meet other agreed operating expenses. Presently, the GOM issues themonthly payments in a single cheque to ESSB, which will then deposit them into one of
the Escrow Accounts. The Trustee will then make the necessary transfers to therespective Escrow Accounts based on ESSB’s advice, supported by the respective
invoices. Deposits into the Tranche 4 Escrow Account will only commence upon the full
repayment of Tranches 1 and 2.
Financial Covenants and Credit Enhancement Mechanisms
Tranche 1: With all units taken over by the GOM, there is stable monthly income tomeet scheduled obligations.
Tranche 2: ESSB is also required to maintain a minimum balance of RM15.million in
the Escrow account at all times.

Contrary to Tranches 1 and 3, theconcessionaire is permitted to withdraw any surplus money in excess of the
stipulated minimum balance, on a semi-annual basis. However, suchwithdrawals can only be made after each scheduled ABBA redemption andthe payment of all other approved expenses (i.e. trustee fees, rating fees,
regulatory fees and legal fees).
Tranche 3: Tranche 3 dictates a minimum balance of RM5.30 million for the Escrow
Account. To ensure that monthly GOM payments under Tranche 3 areproperly applied to meet the relevant financial obligations, ESSB is notallowed to withdraw any funds from the Tranche 3 Escrow Account. Thiscondition is necessary as the financial obligations pertaining to Tranche 3
are not regular throughout its tenure, resulting in a need for theaccumulation of funds to meet the scheduled principal repayments.
Tranche 4: ESSB is also not required to maintain a minimum balance for the Tranche
4 Escrow Account. As comfort to the bondholders, however, ESSB is not
permitted to withdraw any surplus funds (after meeting its scheduled
redemptions) until Tranche 4 has been fully redeemed.

58

4.3.5 Telecommunications
Touch Matrix Sdn Bhd
Instrument
RatingMaturity Date
Profit Margins
Lead Arranger
Trustee

Security

RM60 million Murabahah Islamic Medium-Term Notes
Programme (2005/2012)
AA3 [Assigned]
7 years
Floating
KAF Discounts Berhad
KAF Trustee Berhad1) Assignment of Touch Matrix Sdn Bhd’s (“Touch Matrix”)
rights, titles, interests and benefits under the License
Agreement and Authorised Work Orders.
2) First-ranking debenture comprising fixed and floating
charges on all the present and future assets of Touch
Matrix.
3) Assignment of the Designated Accounts.
4) Assignment of the applicable insurance policies.

Project BackgroundTouch Matrix is a network facilities provider (“NFP”) of telecommunication
infrastructure facilities (“towers”), licensed by the Malaysian Communications andMultimedia Commission (“MCMC”) under the Communications and Multimedia Act
1998. Touch Matrix is also the appointed state-backed company (“SBC”) in Pahang
responsible for the rollout of towers for that State under Timeline Two (“T2”), i.e. the
MCMC’s master plan to extend cellular coverage to 100% of highways, tourist spots,
major towns, industrial zones and other places which have a population density of 80
person/sq km.
Pursuant to the Licence Agreement (“LA”) signed with Maxis Broadband Sdn Bhd (awholly owned subsidiary of Maxis Communications Berhad (“Maxis”)), Celcom(Malaysia) Berhad (“Celcom”) and Digi Telecommunications Sdn Bhd (“DiGi”)(collectively known as “the Celcos”) on 28 April 2005, Touch Matrix is to construct andlicense the use of towers to the Celcos, based on a set of predetermined terms andconditions.
Financing Structure
The proceeds from the issuance of Islamic Medium Term Notes (IMTN) under the
proposed Programme will be utilised to fund the construction of new towers, to fundthe initial amount required under the Finance Service Reserve Account (“FSRA”) andto pay costs related to the IMTN Programme.

59

The conditions precedent for the availability of the proposed Programme include theinjection of initial towers into Touch Matrix by its shareholders, once the relevant
Authorised Work Orders (AWOs) and Certificate of Acceptance (CoAs) for these towers
have been obtained. The cashflow generated by these towers will be sufficient to coverTouch Matrix's fixed operating expenses during the tenure of the proposed Programme.
No consideration will be paid by Touch Matrix, as the injection of the initial towers will
be reflected as shareholders' advances in its accounts.
As a condition precedent to each issuance of IMTN under the proposed Programme,
the AWOs for a set of identified towers must be in force and the amount of IMTN
issued will be based on 90% of the discounted expected receivable value (“ERV”). Eachissue request must be accompanied by a report on the calculation of revenue, duly
reviewed by the reporting accountant. The minimum issuance size under the proposed
Programme is RM1 million.
Financial Covenants and Credit Enhancement Mechanisms
Under the financing documents, Touch Matrix is required to open and maintain thefollowing Syariah-compliant Designated Accounts:
1) Disbursement Account - captures the proceeds from each issuance of IMTN under
the proposed Programme, after deducting transaction costs and the initial amounts
required under the FSRA. The money in this account - managed solely by theTrustee - can only be withdrawn to pay the construction costs of new
telecommunication towers. Withdrawals must be supported by invoices from Touch
Matrix's contractors for the relevant towers.
2) Revenue Account - serves to capture all the revenues and proceeds due and payable
to Touch Matrix. Managed solely by the Trustee, all amounts deposited into thisaccount shall be used in the following pre-determined order of priority:a) Payment of taxes and other charges imposed by the Government of Malaysia.
b) Transfer of required amounts to the FSRA.
c) Transfer of required amounts to the SFA.
d) Transfer to the Operating Account, based on the quarterly budget3) FSRA - Upon each issuance of IMTN, an amount equivalent to the profit payments
for the next 6 months will be transferred to the FSRA from the Revenue Account.
The money in the FSRA can only be utilised to pay the semi-annual profit
payments.
4) Sinking Fund Account (SFA)- The Revenue Account will transfer, on a monthly
basis, an amount equivalent to 50% of the revenues received by Touch Matrix into
the SFA. The amount accumulated in the SFA can only be utilised towards theredemption of outstanding IMTN.

605) Operating Account - The Operating Account is the only Designated Accountmanaged by Touch Matrix. It captures all the money transferred from the Revenue
Account, based on the quarterly budget which will be used to meet the Company’s
operating expenditure and overhead expenses.
Under the financing documents, prior to the full redemption of the outstanding
IMTN, there are covenants that restrict:
1) Any principal repayment or interest payment with respect to any subordinatedadvances/loan stocks;2) Any loans or advances to any person or entity (including its shareholders anddirectors);
3) Any payment of dividends on share capital.
There are also covenants that restrict Touch Matrix from assuming further debt
(other than subordinated advances from its shareholders/directors and amounts raised
under its hire-purchase arrangements7) and from carrying out any activity other thanthat in accordance with its Network Facilities Provider license.
4.4 Main Players in Structuring Infrastructure Financing
There are numerous players in the financial marketplace that are involved in theentire process of infrastructure bond issuance and they are the highly developed andintegrated investment banking institutions in Malaysia. These institutions are
involved from the beginning in terms of origination of debt security through to the
distribution through the Treasury arms of their operations.
As show in Table 17, CIMB is the largest player in the market with respect to boththe value and number of issues. CIMB’s issue value is more than double the value of
ASEAM’s which is ranked 2nd in the league table. The top 5 issuers by value accountfor around 74% of total issue value. Islamic debt issuances out-value conventional bondissues, commanding around 70% of the total issues.

61

Table 17. Lead Managers’ League Table by Value of Issues

1

CIMB

Value
(RM Million)
34,4182

ASEAM

15,036

3

AMINVEST

14,0604

RHB INVESTMENT

9,100

5

UOB

6,082

6

DEUTCSHE

4,610

9

MUAMALAT

3,649

7

KAF

2,340

8

BIMB

2,200

12

MIMB

2,112

13

AMANAH

1,999

10

RHB

1,915

15

CITIBANK

1,620

11

BNM

1,600

14

RHB ASSETS

1,165

16

HSBC

945

17

AFFIN

898

18

MIDF

535

19

STANDARD CHARTERED

401

20

SOUTHERN BANK

350

21

ALLIANCE

332

22

AVENUE

195

23

ABN

80

24

OCBC

Rank

Lead Manager

65

TOTAL
Source: RAM Ratings Database

62

105,707

Table 18. League Managers League Table by Number of Issues
Rank

Lead Manager

ASEAM
CIMB
AMINVESTUOBAMANAHKAF
MIMBRHB INVESTMENT
AFFIN
ALLIANCE
CITIBANKDEUTCSHEMIDF
RHB ASSETS
HSBC
MUAMALATRHBABNAVENUE
BIMB
BNM
OCBC
SOUTHERN BANKSTANDARD CHARTERED
TOTAL
Source: RAM Ratings Database
1
1
3
4
5
6
6
8
9
9
9
9
9
9
15
15
15
18
18
18
18
18
18
18

Number
23
23
19
12
8
5
5
4
3
3
3
3
3
3
2
2
2
1
1
1
1
1
1
1
130

Method of Issuance
Malaysian Government Securities, Malaysian Treasury Bills, Khazanah Bonds(Benchmark Bonds), Cagamas Notes and other Bonds are issued through a tender
process where Principal Dealers tender competitively on the basis of price/discount fora minimum of 10% of the issue. These Principal Dealers comprise of Tier 1 banks only
which have a capital base of at least RM500 million. The time to market for a corporatebond issue, on average, is 6 months; this period of time runs from the point the
mandate is received until the issue date. Any delay puts additional risk on theunderwriting bank, due to unforeseen interest rate fluctuations. Nearly all MTNs andCommercial Paper Programs are subscribed by Tender Panel Members.
4.5 Key Issues and Challenges in Financing Infrastructure Projects
As the demand for infrastructure continues to grow in tandem with economic growth,
there are certain issues prevailing in infrastructure financing which have limited the63amount of investor funds in this segment of financing, ultimately resulting in amismatch in the supply and demand of funds in the country’s financial system.
Changes in Agreements with Concessionaires
The concept of uncertainty in any economic endeavor is of great significance andbears considerable risk. One impediment that affects infrastructure projects is thewavering nature of government regulation or management of their agreements withconcessionaires. This can be seen in the case of toll road facilities and also mostrecently the intended renegotiation of terms pertaining to the Purchasing Power
Agreements (PPAs) between Tenaga Nasional (the main off-taker) and theIndependent Power Producers (IPPs). PPAs form the stable foundation for IPPs
operating in the Energy sector as they are viewed to form the basis of IPPs’ demand
and they currently offer very favourable terms to the IPPs (with regards to how muchcapacity they will supply and the rates at which this supply will be taken up at). The
uncertainty of the outcome of this renegotiation process (in which reserve margins are
expected to be reduced and the postponement in the commissioning of certain plants)
has the ability to deter any aggressive investment in this sector.
Macroeconomic Instability
As most vividly exemplified by the 1997/98 Asian financial crisis, infrastructure
financing by the private sector is not immune to macroeconomic shocks. Inconsistentfiscal and monetary policies that advocate constant adjustments to key economic
variables such as interest rates, exchange rates, and taxes will cause uncertainty inthe market and deter investment. This issue is especially accentuated if there isinadequate institutional framework to protect the interests of investors in the market.
However, since the financial crisis Malaysia has shown relative macroeconomic
stability and private investment is anticipated to pick up further in the coming years.
Project Economics and Viability
Although infrastructure projects are deemed to be relatively stable and robust
investments, there still remain inherent risks in ensuring successful projectcompletion and operation and generation of returns to investors. There are several
infrastructure projects in the past that have been unsuccessful in doing so. One of thetoll road projects that encountered difficulties is the ELITE Toll Road whose
operations had to be bailed out by the Government due to debt repayment default. The
failure of this project stemmed from the fact that toll receipts fell short of expected
revenue and the ramp up period to which repayments started was too short. Thus, not64

only is it imperative to carefully access the feasibility of the project at hand, but it isalso extremely important to look at how the whole financing scheme is structured.
Potential investors must be able to assess these factors cautiously.
Under-developed Capital Market
Malaysia’s bond market is relatively young, with the first infrastructure-type projectbonds being issued in the mid-1990s. Investors’ appetite for very long tenured bonds ofmore than 20 years is still low with the longest tenures presently being in the region of
10-15 years. The secondary market is still relatively illiquid. Although the market has
become more diversified (with respect to issuers), the bonds remain concentrated at
the high-end of the credit quality spectrum. There is hardly any market demand forinfrastructure-related issues that have a rating of below AA due to high risk aversion
amongst investors (mainly caused by regulation of institutional investors which form
the bulk of investor base) and the absence of a market for lower grade bonds (which
could be due to the embryonic stage of the venture capital sector).

Another prevalentfeature of the market is the prevalent investor type of buying and holding on to theirinvestment until maturity, resulting in an illiquid secondary market.
Insufficient Information Disclosure
As mentioned previously, the main investors in infrastructure bond financing are
the institutional investors such as insurance companies. One common gripe amongst
these investors is the lack of adequate information that is available for potential
investors to make optimal investment decisions. Projected cash flows are the main
source of information in which investment basis is conducted; however, a moretransparent overview of the project itself would spur investment activity. It would also
encourage different types of investors into the market. Furthermore, a large number ofproject issues still do not fully attempt to cater to the needs of its main investors(institutions) with specific maturity periods and insufficient investor protection.

65

5.

LEGAL AND REGULATORY FRAMEWORK GOVERNING
THE BOND MARKET

5.1 Rules and Regulations Governing the Issuance of Bonds
The Malaysian bond market is supervised by two principal regulatory bodies,
namely Bank Negara Malaysia (Central Bank of Malaysia) and the Securities
Commission (SC).
Bank Negara Malaysia (BNM) regulates the activities of financial institutions via
the Banking and Financial Institutions Act of 1989 (BAFIA). It issued the Guidelines
on the Issuance of Private Debt Securities in 1989 which established the process,procedures and criteria for any resident company to raise funds from the public. A
resident company is free to issue any amount of ringgit PDS. On 1 July 2000, theapproving authority for private debt securities (PDS) was transferred from BNM to theSC.
The SC was established on 1 March 1993 pursuant to the Securities Commission Act
of 1993 with the power to regulate the issuance of and the dealings in securities, toencourage the development of the securities market, and to curb improper dealings. It
also regulates all matters pertaining to unit trusts and takeovers and mergers.
Effective 1 July 2000, the SC is the single approving and registering authority forprospectuses with respect to all PDS other than securities issued by unlisted
recreational clubs. The lodgment of prospectuses is under the responsibility of theCompanies Commission of Malaysia (formerly known as Registrar of Companies).
A chronology of changes in the regulatory framework and bond market development
initiative are provided in Appendix I and Appendix II respectively. The SC updated theguidelines for the issuance of PDS on 30th March 2003. These guidelines are
reproduced in Appendix III.
Tendering of bonds is carried out through the Fully Automated System for
Tendering (FAST). FAST is an automated tendering system whereby invitations totender, bids submission, and processing of tender for Scripless Securities Trading
System (SSTS) instruments and short-term private debt securities are done
electronically. The objective of FAST is to improve the overall efficiency of thetendering procedures, to reduce errors and delays arising from manual handling oftenders, and to eliminate potential disputes that may arise from the bidding process.
Membership in FAST is currently open to licensed financial institutions (commercial

66

banks, merchant banks, discount houses, and Islamic banks), development banks,
insurance companies, statutory bodies, other financial bodies, and other market
participants as approved by BNM.
For fund settlement purposes, the results of the tender for SSTS instruments arelinked to the Real Time Electronic Transfer of Funds System (RENTAS) for allotment
of securities and cash transfer. For PDS tendered through FAST, the settlement isdone manually either through the Interbank Funds Transfer System or check clearing.
Membership of RENTAS is restricted to financial institutions licensed under the
Banking and Financial Institution Act of 1989. The Bond Information and
Dissemination System (BIDS), a computerized centralized database on Malaysian debt
securities, provides information on the terms of issue, real-time prices, details of trades
done, and relevant news on the various debt securities issued by both the Government
and the private sector.
The transparency of information provided by BIDS has facilitated both primary andsecondary market activities in the domestic bond market. BIDS provides transparency
of information on bonds issued, thereby facilitating efficient trading in the secondary
OTC market and enhancing liquidity in the debt securities market.
In late 2005, the SC promulgated a set of guidelines for the registration of bondpricing agencies. Subsequently in late 2006, it approved the registration of Bondweb
Malaysia Sdn Bhd as the country's first licensed bond pricing agency. The bond pricing
agency provides the market with prices of all bonds outstanding in the market on adaily basis. With the availability of daily bond prices based on fair valuation by anindependent pricing agency, the expected improvement in price discovery andimplementation of mark-to-market valuation practices are expected to contribute to amore efficient and transparent bond market.
5.2 Bond Market Development Plan
The development plan for the Malaysian bond market is spelt out in the CapitalMarket Masterplan (CMP) released in February 2001. It is a comprehensive plancharting the strategic positioning and future direction of the Malaysian capital market
for the next ten years (2001 - 2010). The key strategies formulated for the developmentof the bond market and our assessment of the implementation status is summarized inTable 19.

67

Table 19. Capital Market Masterplan 2001-2010 and Current Implementation Status
CMP Strategy

Implementation Status

To remove the mandatory requirement for
credit ratings on issuance of corporate
bonds.

This has yet to be implemented to givedomestic rating agencies more time toprepare for the deregulation as well as toexplore partnerships with global credit
rating agencies to strengthen their rating
services so that the demand for rating
services becomes investor-driven rather
than regulatory driven. We expect theremoval of the mandatory requirement tohappen during the plan period up to 2010.
As above, this has yet to be implemented
partly because the international rating
agencies have or are in the process oftaking up an equity stake in the twodomestic rating agencies. Effectively, their
participation in the domestic operations isequivalent to allowing international ratingsfor domestic bond issuance.
On 7th March 2005, the Central Bank issued
the Guidelines on Regulated Short-Sellingof Securities and established a short-selling
framework for MGS in the wholesalemarket for Principal Dealers, interbank
participants and universal brokers.
3 and 5-year MGS futures are now
available and actively traded in the stock
exchange (Bursa Malaysia).
The EPF is now allowed to reduce its MGS
holdings to below the mandatory 50% anddirect placement of MGS with the EPF is
now discontinued. The issuance of MGS by
the government is now based oncompetitive bidding.
There have been two issuances bymultilateral development banks andmultilateral financial institutions.
The stock exchange is in the process of
implementing a centralised platform for the
trading of unlisted bonds. Its launch which
was planned for 2006 has been postponed
to 2007 due to technical problems.
The SC in now promoting bond funds as ameans for retail investors to participate in
the bond market. High net worth individuals
however are allowed to purchase bonds
over-the-country through the Principal
Dealers.
Stamp duty for issuance of corporate bonds
has been waived and individual investors
and unit trusts are exempted from paying
tax on interest earned from investment inlisted and unlisted corporate bonds.

To allow international ratings for domestic
bond issuance.

To allow regulated short selling of MGS andcorporate bonds.

To establish MGS futures and options
market.
To free up “captive demand” on MGS bypension fund and insurance companies.

To encourage international financial
institutions and multinational corporations
to issue ringgit bonds.
To establish a centralised platform for theclearing and settlement of listed andunlisted bonds.
To encourage participation of retailinvestors in the corporate bond market.

To review tax framework to encourage
issuance and investment in debt securities.

68

6.

INVESTOR PROFILE

6.1 Demand and Risk Profile of Investors
The nature of infrastructure project bonds mainly appeal to institutional investors
such as the insurance companies, unit trusts and pension funds due to their long-term
investment periods that enable these institutions to generate a stream of long-term
cash flows consistent with their objectives.
In the debt market, issues of bonds may be publicly placed i.e. offered to any party
participating in the market, or through a process of private placement which involves
these bonds being sold directly (‘placed’) with pre-identified investors which areusually institutional organizations like those mentioned above. As different types ofbonds bear varying risk intensities (ranging from relatively risk-free investments like
Malaysian Government Securities (MGS) and the more risky unsecured type bonds),
there are various forms of debt securities to suit investors with differing risk profiles.
Institutional Investors
These are professional or institutional investing entities which utilize the bondmarket as a vehicle to create steady, stable streams of returns to their clients. Such
institutions include pension funds like Employees Provident Fund (EPF) andinsurance companies (more so nowadays with many insurance schemes having
investment-linked elements attached to them).
The main institutional players in the investment market are:• Unit Trusts/Mutual Funds - Unit Trust Funds are regulated by the guidelines set
out by the Securities Commission in which 15% of the value of the Unit Trust’s fundis required to be invested into liquid assets.
• Insurance Companies - Under the Insurance Act 1963, at least 25% of total life
insurance funds must be invested into Malaysian Government Securities (MGS).
The stipulated maximum share of the different categories of investment is as follows(as prescribed by regulations): Equity (30%), Loans (20%) and Properties (20%).
Subsequently, a maximum of 20% can be invested into secured corporate bonds anda maximum of 10% is allowed for unsecured bonds which have at least an A
long-term rating. Different Insurance companies will have their different policies interms of how much of their funds (with respect to the stated limit) they invest into
debt which depends on their level of conservativeness in taking on debt securities.
This proportion could range from 10% to 30% in the Malaysian market.

69• Pension and Social Security Funds (EPF) - Under the EPF Act 1991, it is arequirement for EPF to invest at least 50% of its funds into MGS. However, this rulehas been under much criticism as there are not enough MGS available for EPF tosatisfy this minimum requirement. In recent years, the EPF’s holdings of MGS havefallen below its required threshold due to a reduction in the strictness of thiscondition and the improvement in the Malaysian budget situation. Currently (as at
31st December 2006) MGS accounts for 34.6% of asset allocation. This ruling has
been viewed as the main deterrent for EPF in investing in other forms of financing.
However, with respect to the high uptake rate of MGS (which are primarily used todevelopment expenditure by the Government), EPF can be regarded as the main
institution that invests in infrastructure financing through debt in the economy.
Figure 10. Asset Allocation of EPF as at 31st December, 20064

10%

1%
35%

19%

Malaysian Govt Securities
Loans & Bonds
EquityMoney Market Instruments
Property

35%

Source: Employees Provident FundTable 20. Investment Assets of the Employees Provident Fund
Amount(RM billion)
98.67

Type of Investment
Malaysian Government Securities
Loans & Bonds
EquityMoney Market Instruments
Property
Total
Source: Employees Provident Fund

100.7
54.72
29.66
1.7
285.45• EPF’s investments are diversified across the infrastructure sub- sectors. Its portfolio
is currently skewed towards IPP bonds due to the high number of debt issues in this
sector. The debt securities in its portfolio have an average credit rating of double A
4“Loans And Bonds” consists of Private Debt Securities, Guaranteed Loans & Debentures, Cagamas
Securities, Loan Stock, Islamic Bonds, Malaysian Government Islamic Bonds, Short-term
Conventional Bonds, Conventional & Islamic Supra Bonds, Fixed Income Fund Managers after
Allowance for Bad and Doubtful Debts

70

(AA). Besides a minimum rating of a single A, EPF considers the yield on investment
as the main investment criterion. According to a senior official interviewed, EPF
does not have any preference regarding the type or structure of the debt instrument
but its internal credit evaluation process is focused on the security features andenhancement present in the bond structure.
6.2 Requirements of Investors in the Bond Market
Institutional investors find investment in the infrastructure sector to be of great
importance and relevant to their relative investment requirements due to the nature of
infrastructure activities. It is important to understand these requirements in order tofully access the reasons for participation.
One dominant feature of the profile of investors in the Malaysian bond market istheir risk adverse attitude towards investment. This is exhibited by the fact thatinvestors are very reluctant to invest in bonds that have long-term ratings below an A.
Thus high grade bonds with extremely robust credit quality are of great significance interms of investor requirements.
The poor risk appetite of institutional investors can be attributed to the investment
guidelines that specify the minimum investment grade for bonds. This minimum
investment grade has not changed much since the establishment of the bond market
due in part to the experience of several bond defaults during the 1997/98 Asianfinancial crisis that further increase the risk aversion and affirm the conservative
approach of institutional investors towards the debt market. Moreover, institutional
investors must also adhere to guidelines set out in accounting policies and risk
management standards like the Basel Accord, which may also establish certain
limitations on their investment risk.
High ratings of bonds are associated with certain favorable characteristics of the
project, which in turn reflect the investor requirements when choosing an appropriate
investment. Thus, investors would require projects to have the following desirable
attributes amongst others:• Strong projected cash flows• Stability and good track record of sponsor• Stability in the overall sector and in the underlying policies governing it• Well-structured financing structure for project, with risk mitigation through credit
enhancement mechanisms

71

The availability of information and the transparency of the operations of the project rankvery high on the list of investor requirements. It is imperative that investors feel thatthe whole investment evaluation process is sufficiently transparent so as to lessen theeffects of uncertainty, which would subsequently dampen investment activity. Thus,
the role of ratings agencies has become increasingly important in providing third party,
objective credit assessment, particularly for bonds which have more complicatedfeatures.
Another characteristic of an investor requirement is for the debt security to have along tenure to maturity. Given that the investing institutions have long-term liabilities,
they require investment in long term assets to enable maturity matching. Also, giventhat the secondary market is not sufficiently liquid, these institutions are generally‘buy and hold’ investors or passive rather active investors that engage in trading to
profit from changes in interest rate, yield curve or credit quality.
The institutional investors require relatively stable streams of cash flow in order toservice their respective clients’ returns to investment. Infrastructure bonds are seen to
be one of the more stable sectors in the economy in this regard, mainly due to the factthat many of these projects tend to be state initiatives or concessions. This sort ofGovernment backing is viewed as a highly desirable attribute that can act as asafeguard for the investment.
6.3 Credit Rating and Market Performance of Selected Infrastructure Bonds
The rating and market performance of the infrastructure bonds over time varies bysector, reflecting the underlying performance of the project/company, the stability of
cash flow generation and the mitigation of business and financial risks. An overview of
the credit and market performance of the representative bond selected for eachsub-sector is presented below.
Credit Rating Performance
1. Power
Selected Case 1:
Corporation Name: YTL Power Generation Sdn Bhd
Debt Instrument: Fixed Rate Facility
Issue Value: RM 1,500 million

72

Rating History:
Year
1993
1995
1996
1997
1998
1999
2001
2002
2003
2004
2005
2006

Rating
AA3
AA2
AA1
AA1
AA1
AA1
AA1
AA1
AA1
AA1
AA1
AA1

When the bonds were first issued in 1993, they were rated at
AA3 rating by RAM. Over time, however, given its stableperformance record and the favourable terms in its PPA, its
rating was upgraded to AA1 in 1996 and reaffirmed annually
since then.

Selected Case 2:
Corporation Name: Powertek Bhd
Debt Instrument: Redeemable Unsecured Bonds
Issue Value: RM 350 million
Rating History:
Year
2001
2003
2004
2005
2006

Rating
AA1
AA1
AA1
AA1
AA1

Again, another First Generation IPP maintains its initial rating of
AA1 over the same period as the case above. It reflects thestable credit quality of IPPs due to the inherent structure of the
project whereby the off-take is secured.

2. Transport
Selected Case 1:
Corporation Name: Expressway Lingkaran Tengah Sdn Bhd (ELITE)
Debt Instrument: Floating Rate Notes
Issue Value: RM 440 million
Rating History:
Year
1995
1996
1998
1999

Rating
A2
A2
A2
C3

This particular issue in the transport sector experienced manyfinancial difficulties during its course, mainly attributable to thestructure of the financing scheme and the onset of the Asianfinancial crisis in 1997/98. A month after the rating of “C3” in1999, the issue was further downgraded to a “D”.

Selected Case 2:
Corporation Name: Expressway Lingkaran Tengah Sdn Bhd (ELITE)
Debt Instrument: Al-Bai’ Bithaman Ajil Islamic Debt Securities
Issue Value: RM 800 million

73

Rating History:
Year
2003
2004
2005
2006

Rating
AA3
AA3
AA3
AA2

After a debt restructuring exercise for the ELITE project, a newissue has been put into the market in the form of Islamic Debt
instruments. This issue has a “profit margin” band, limiting
interest rate fluctuation, which may account for its greater
stability to some extent.

3. Water and Sewerage
Corporation Name: Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH)
Debt Instrument: Al-Bai’ Bithaman Ajil Islamic Debt Securities
Issue Value: RM 1,407 million
Rating History:
Year
2000
2002
2003
2004
2005
2006

Rating
AA3
AA3
AA3
A1
AA3
AA3

SPLASH’s unfavourable credit position improved in 2004
following the restructuring of the Selangor state water industry,whereby both payment and collection cycles were reduced
significantly.

4. Airports and Ports
Selected Case 1:
Corporation Name: K.L International Airport Bhd
Debt Instrument: Bai' Bithaman Ajil Notes Issuance Facility
Issue Value: RM 4,060 million
Rating History:
Year
2003
2004
2006

RatingAAA
AAA
AAA

The strong government backing for this project enabled thebonds to obtain the highest rating that was maintained eversince.

Selected Case 2:
Corporation Name: Penang Port Sdn Bhd
Debt Instrument: Medium-Term Notes Facility
Issue Value: RM 80 million
Rating History:
Year
2000
2001
2002
2003
2004

Rating
A2
A2
A2
A2
A2

Ratings have remained stable throughout the issue.

74

5. Telecommunications
Selected Case 1:
Corporation Name: Celcom (Malaysia) Bhd
Debt Instrument: Floating Rate Bonds
Issue Value: RM 350 million
Rating History:
Year
1995
1996
1997
1998
1999

Rating
A1
A1
A1
A1
BBB3

Corporate Telco issues are highly dependent upon the status ofits operations and revenue-generating performance. This canbe illustrated by the fixed rate issue shown below, as opposed to
the floating rate in this case, for the same corporation, over thesame period.

Selected Case 2:
Corporation Name: Celcom (Malaysia) Bhd
Debt Instrument: Fixed Rate Bonds
Issue Value: RM 182.8 million
Rating History:
Year
1995
1996
1997
1998
1999

Rating
A1
A1
A1
A1
BBB3

Rating performance was not enhanced by the fixed feature of thefinance structure.

Market Performance
The price or yield of infrastructure bonds in the secondary market is driven bychanges in market (principally interest rate), credit and liquidity risks. A snapshot of
the yield performance of selected infrastructure bonds is shown in Figure 11 toillustrate the fluctuations in the market performance of individual bonds. The
individual differences can be attributed to sector, credit rating, maturity period andinvestors' perception of the security of individual bonds.

75

Figure 11. Market Performance of Selected Infrastructure Bonds
8.00

YTM (%)

7.00
6.00

Jimah Energy
Islamic MTN

5.00

GB3 (7.05%)

4.00

PLUS (zerocoupon) Tranche
4
Puncak Niaga

3.00
2.00
1.00
0.00
Sep-05 Dec-05 Mar-06 Jul-06 Oct-06 Jan-07 Apr-07

Source: Bondweb Malaysia

The above selection is intended to illustrate the sophistication of investors in pricing
the different risk elements of each bond given the different characteristics of thebonds:• Power sector: Jimah - rated AA3(s) by RAM, period to maturity 18 years• Power sector: GB3 - rated AA2(s) by RAM, period to maturity 7 years• Toll road sector: PLUS (zero coupon) - rated AAA by RAM, period to maturity 24
years• Water sector: Puncak Niaga - rated A+ by MARC, period to maturity 9 years
Secondary market liquidity however remains thin as shown by the turnover ratio in
Table 21.
Table 21. Monthly Trading Volume and Turnover Ratio
Year
2002
2003
2004
2005
2006

JIMAH
Vol
Monthly
traded turnover(RM mil)
(%)
208
12%
155
9%

Total
outstanding
150(RM mil)
Source: Bondweb Malaysia

GB3
PLUS
PUNCAK
Vol
Vol
Vol
MonthlyMonthlyMonthly
tradedtradedtradedturnover (%)
turnover (%)
turnover (%)(RM mil)(RM mil)(RM mil)
134
9%
276
13%
124
9%
265
12%
4
0%
115
5%
4
0%
469
5%
80
4%
22
2%
485
5%
148
7%
120

800

76

180

7.

CREDIT RISK ASSESSMENT METHODOLOGY FOR EVALUATINGINFRASTRUCTURE PROJECTS

7.1 Checklist for Assessing Credit Quality of Infrastructure Projects
Given the increasingly diverse needs of project sponsors and lenders in the
Infrastructure financing segment and the dynamic environment that these projects
operate in, assessing the credit quality of such projects has become a more complicatedand significant process. A concise methodological framework for this purpose isidentified below and explained in this section.
This methodology is seen to successfully quantify and qualify apparent risks in thisfinancing segment for potential investors in the market. The analysis consists offactors that are directly related to the implementation of the project, such as cash flows
from project, and factors external to the project that may have implications on its
relative viability, such as institutional development supporting the project as
illustrated in Figure 12, are also considered.
Figure 12. Assessing Credit Quality of Infrastructure Projects - Key Risk Areas
Project-Level
Risks

Sovereign
Risk

Institutional
Risk

Force
MajeureRisk

CreditEnhancements

Step 1 - Project-Level Risks
Project-Level Risks are the most fundamental risks that must be taken into accountwhen assessing credit quality. In this analysis, primarily, the ability of the project tooperate as a going-concern for the duration of revenue-generating period in order toservice its debt obligations is considered.
Project characteristics used to assess this include:-Contractual Foundation - To determine the level of security of the project in themarket through the agreements provided in the contracts. One feature of a good
contract in this sense, is one which manages to align the objectives of both the lenders
and those carrying out the project.

Technology, Construction & Operations - The ability of the project to be completed
and in the way it was first planned to be in terms of design, construction method. This77

consists of pre-construction and post-construction risks. This pinpoints the reputationof the contractors on the project being an important element in assessing credit quality
as the completion of the project is largely dependent on this party.

Competitive Market Exposure - Analysis of the potential relative market position of
the project when it becomes an active player in the economy will also provide useful
insight into credit quality. Any competitive edge that the entity may have in terms oftechnology, cost savings etc will feature in this examination.

Legal Structure - To determine whether the project will be solely operating in theactivities as stipulated in its contract. Also, the purpose and involvement of otherentities connected to the project, such as “Special Purpose Vehicles” (SPVs) and othersponsors will be further investigated and ensuring that insolvent related parties do notaffect cash flows of the project.

Counter-Party Exposure - Analysis of contractual participation by external parties
having an implication on the project structure eg. Upstream and downstream players
in the Industry. The importance of these parties can be illustrated by the example ofthe strength of offtake counterparts involved in a project. The viability of this player
will have a direct consequence on the success of the project.

Financial Strength - The ability of the project to endure the numerous financial
obligations (eg. costs of operations and management, expenses etc) and other financial
uncertainties (eg. interest rate risks, exchange rate risks etc), is assessed. A key rating
criterion is the debt service coverage ratio (DSCR) which measures the ability of the
cash flow generated to cover the debt servicing. Table 22 illustrates the highest scoring
criteria for project risks.
Table 22. Highest-Scoring Criteria for Projects in terms of Project-Level Risks
Contractual Foundation

Tech/Construction/Operations
Competitive Market Exposure

Legal Structure
Counter-Party Exposure
Financial Strength

Project is a credit lease
Offshore trustee
Strict controls on cash flows
Project is a credit lease
Fixed price and date turnkey project
Project is a credit lease
Project sells a product with worldwide demand
Strong long-term market outlook
No ability to issue further debt
Project is credit lease
Rated off-take company with excellent track record
Counter party guarantees revenue payments
Amortizing debt payments
No subordinated debt allowed78

Step 2 - Sovereign Risk
This element of the analytical framework employs the use of the Sovereign Foreign
Currency Rating of the country in which the project is implemented. Sovereign risk
acts as a control, acting as a measure to how willing and able a country's Government
can service foreign currency debt in a timely manner and meeting the full obligation;
which in turn affects the project ability to service its own specific foreign currency debt.
Policies or actions by Governments of the sovereign country will have a bearing on therelative ease or difficulty in accessing financing. A good example is the case of theimplementation of exchange controls. However, if in this instance, the project has
considerable foreign ownership which is imperative to its operations, the implicationsof exchange controls would be somewhat mitigated and credit quality would improve.
Step 3 - Institutional Risk
There are certain legal and financial institutions operating in a country that will
have a direct effect on the success in implementation of a project, not previously
captured in the sovereign risk profile. Thus, the analysis of country-specific factors
here aims to complete the whole picture. To illustrate the presence of such risks, a good
example would be the way in which a country's legal system deals with Intellectual
Property Rights.
The highest scoring criteria in credit quality in terms of institutional risks include:• The presence of well-developed legal and financial systems• A good track record of transparency in financial reporting
Step 4 - Force Majeure Risk
This type of risk may be one of the most significant to account for and as its nameimplies, it is a risk that is unanticipated and in essence, outside one’s control.
Futhermore, project financing is one segment which is highly susceptible to this kindof risk. Adequate steps in reducing such risk must be taken as in the event of any force
majeure occurrence, there would be a sudden disruption in cash flows which would bedire for project operations. More importantly, the inability to account for these
impending occurrences would most probably lead to default on financing obligations.
The ability of projects to mitigate the effects of any force majeure occurrence and theability to return to normal operations following that will improve credit quality of the
project.
The highest scoring criteria in credit quality in terms of institutional risks include:-79• High linearity and simplicity in operations such as in Toll Roads• The characteristic of being geographically spread such as power plants
Step 5 - Credit Enhancements
This involves an assessment of the various credit enhancement facilities available tomitigate most of the risks mentioned in Steps 1-4 in the analytical framework related
to the financing structure of the project. These credit enhancement mechanisms arecommonly seen in the form of insurance programs that cover both commercial andpolitical risk (usually offered by Multilateral Agencies), insurance products offered byprivate parties that help reduce the probability of default and other financial elementsin the projects financing structure (such as a Debt-Service Reserve Fund) which does
not reduce the risk of default per se, but assists the project in recovering post-default.
7.2 Key Risk Areas by Type of Project
Highlighted below are the key risk areas for each infrastructure sub-sector.
Power Sector - Independent Power Producers (IPPs)
In terms of credit quality, the construction phase holds the single,
largest risk for this kind of project. The failure to complete theconstruction of the revenue-generating entity (plant) will cause theConstruction
Risk

Purchasing Power Agreement (PPA) to become void if the plant fails
to be commissioned 180 days after the stipulated finish date on the
PPA,leadingtotheproject’s

cancellation.

Thus,

thoroughunderstanding of the plant’s design and technical aspects must beemphasised.
Much importance is also given to the numerous contracts that govern
Contractual
Risk

the project. The most prominent one in this sector in Malaysia is the
PPA. This contract and the rates attached to it help mitigate risks inpower plant projects.
The availability of capacity of the plant to produce electricity togenerate revenue is another area to consider as there is a minimum

OperationRiskrequirement under the PPA in order for plants to obtain full capacity
payments from the Off-takers. Efficiency as measured by heat control
is another condition to be satisfied under PPA. Thus operational
efficiency of a plant is imperative.

80

This refers to the ability of the plant project being able to service debt
CustomerConcentration
Risk

as a function of credit-worthiness of off-taker, in terms of paying its
own bills. As electricity generated by IPPs are of derived demand, therelative strength of the source in demand is of utmost importance too.

Transport Sector - Toll Roads
Completion of the project and thus its establishment as arevenue-generating entity remains of utmost importance. The more
complicated building structures that require a large amount ofConstruction
Risk

technical expertise and technological know-how in terms of
construction processes will be the projects having a higher risk
attached to them. Another issue pertaining to construction includes
the ease of acquiring land for this use. Delays could lead to additionalcosts that were not initially budgeted.
In terms of Toll Road projects, this element is the most critical risk
factor. Through past experiences in the Malaysian market, it has

Traffic Volume
Risk

been difficult to accurately forecast the amount of traffic flow throughthese new toll roads. It has been seen to be extremely volatile in theearly months after completion. Thus, projections nowadays are very
conservative due to this inherent uncertainty.
Toll Roads in Malaysia are regulated under Concession Agreements(CAs) which are able to dictate the time period and quantum of tollroad rate hikes. Due to this regulatory pressure and the unfavourable

Regulatory
Risk

effects these hikes have on consumers, CAs have been revised tolengthen the time in which a hike can be implemented and theabsolute value in these hikes. Thus, risks to debt servicing ability
may be brought upon by policies of the regulatory body.
This risk analyses the operating and maintenance activities of thetoll road which are routine for its type of business. In general, it isOperations &MaintenanceRisk

recognised that most contingencies are handled by insurance andcapital expenditure on activities such as road repair will be factored
into the annual budgets. Thus, credit risk is assessed in terms of how
conservative these O&M expenses have been budgeted and if they are
maintained.

81

On the whole, toll road operations tend to be relatively stable sourcesofFinancial Risk

revenue

flow

i.e.

cash-based

operation,notheavily

capital-intensive etc. Moreover, margins are seen to be at least 70%,
owing to the conservative O&M expenses. However, there is risk incases where the revenue flow is lower than projected or upper
management has pursued a highly aggressive financing structure.

7.3 Specific Credit Support and Covenants used to Increase Investor Participation and
Deepening of Bond Market
As described in Section 4 of the report regarding the financing structures of thevarious landmark deals in Malaysia, there are certain financial covenants and credit
enhancement features that serve to protect bondholders’ interests. Below is asummary of the most common features in terms of bondholder security for the various
infrastructure sectors covered in this study.
Power Sector
1) The Power Purchase Agreement (PPA) (with Tenaga Nasional Bhd (TNB) as themain off-taker) has always been regarded as a credit enhancement feature for IPPbond issuances. The financial and operational strength of TNB, along with thepositive terms stipulated for IPPs in the PPAs (especially in the earlier Generationsof PPAs) is seen to give potential investors the impetus to invest in this sector.
2) A Debt Service Coverage Ratio (DSCR) is set to be adhered to, with an averageminimum ratio being around 1.3 times before distribution of dividends and otherobligations to shareholders.
3) Designated Accounts are also maintained in order to separate funds and their uses
in order for better monitoring and control of fund inflow/outflow. Such accounts
include the “Financial Service Reserve Account” which is usually utilised for thepayment of senior Medium Term Notes, “Escrow Account” and other project-based
accounts.
4) There are also limits set on the minimum amount that should be retained in thedesignated accounts at all times and also specifications on the D/E ratio that should
be maintained according to the relative financing structures and nature of
instruments used in the deal. There is a growing movement toward hybrid
securities, i.e. convertible securities or equity which have debt-like characteristics

82

causing D/E ratios to increase in the direction of more debt in recent structures(like in the Jimah Energy case).
Transport
1) The use of “Financial Waterfalls” provides a prudent method for prioritising
payments during implementation of a project and basically serves the same
purpose as Designated Accounts. This way, financial discipline is imposed on
project funds and there is a clear order to which payments rank higher inimportance and so on.
2) There are minimum requirements applied to Debt Service Coverage Ratios(DSCRs) which tend to be higher than that required for IPPs, with minimum values
ranging around 2.5-2.75 times. Furthermore, minimum amounts are also applied to
the various accounts that must be maintained like the Finance Service Reserve
Account and the Maintenance Reserve Account.
3) As discovered through experience (especially the initial failure of financing the
ELITE highway), there have been numerous re-financing schemes employed to help
in this sort of situation. The ramp up periods to from which the project starts anddebt servicing is required to take place, have been extended given the difficulty ofmaking highly accurate projections on traffic flow and thus estimated revenue. Also,
the use of zero-coupon bonds are popular in these situations as they facilitate thereduction in cases of credit default.
Moreover, with Government assistance given to several toll road projects (like
ELITE) after the Asian Financial Crisis, Government loans were structured as to defer
these debt repayments until other debt servicing commitments were back on track.
Water1) The Capacity Charges (CCs) to water concessionaires have been considered rather
lenient in terms of the conditions imposed. As opposed to the situation of IPPs
under their PPAs, CCs are disbursed to Water concessionaires regardless of thequantity of water supplied. This is seen to help insulate against fluctuations indemand. Furthermore, CCs are normally structured to cover debt servicing,overheads and other operating expenditure, as well as providing a reasonable rateof return to shareholders. Also, there are no clearly stated operational
requirements that must be met in order for water concessionaires to receive full
CCs.

83

2) As with the other 2 sectors described above, projects under the water sector are also
subject to financial covenants that relate to minimum DSCR requirements andrestrictions on the amount of debt taken on by the company. The minimum averageannual DSCR is around 1.3 times.
Besides the features above that are very specific to the respective sectors, otherfactors that have contributed to the deepening of the bond market include:a) Establishment of ratings agencies, contributing to the transparency of the bondinvestor market.
b) The continuing Government support and commitment to infrastructuredevelopment (as seen though the budgeted expenditure of the latest Ninth
Malaysia Plan)c) Ensuring that the parties involved in construction process (eg. Contractors) areplayers with good track records and fully capable of the job at hand.

84

8.

INFRASTRUCTRURE PROJECTS UNDER
THE NINTH MALAYSIA PLAN

8.1 Potential 9MP Projects that Could be Financed through Private Financing Initiatives(PFIs)The Eighth Malaysia Plan (8MP) saw the expansion of the transportation, watersupply and sewerage networks with total government expenditure for the 5-year
period from 2001 to 2005 reaching RM38.7 billion on public utilities infrastructurealone.

As shown in Table 23, the Ninth Malaysia Plan (9MP) for the 2006-2010 period

will continue this expansion on the development of infrastructure with a concerted
effort on increasing the efficiency of existing facilities and improving the accessibility
and linkages in rural areas.
Table 23. Federal Government Development Allocation and Expenditure
Eight Malaysia
Plan (2001-2005)

Ninth Malaysia Plan (2006-2010)

Expenditure(RM million)

% of
Total

Development
Allocation(RM million)

% of
Total

31,81318.7

31,876

15.9

560

0.3

533

12,722

7.5

43,729Housing
TOTAL

Economic
SectorTransport
Communications
Energy & Public
Utilities
Education &Training

PrivateFinance
Initiatives(RM million)

Grand
Total

% of
Grand
Total

634

32,510

14.8

0.3

0

533

0.2

21,80510.9

021,8059.9

25.7

41,114

20.6

9,472

50,586

23.0

6,972

4.1

9,947

5.0

1,565

11,5125.2

170,000

100.0

200,000

100.0

20,000220,000

100.0

Source: Economic Planning Unit, Malaysia

Compared to the 8MP, there is a considerable increase in the 9MP in total spendingon the Energy and Public Utilities & Housing segments, with a notable moderateincrease in Education and Training spending too. Amongst these sectors, only theTransport, Education (having the largest scope of PFI activity) and Housing sectors
possess the opportunities for Private Financing Initiatives (PFIs) as budgeted by theGovernment. This could mainly be due to the Government feeling the need of keeping
these integral sectors under their control in the era of the requirement for theestablishment of new infrastructure for the changing market environment; i.e. new
infrastructure for 3G networks and infrastructure for alternative energy facilities.
Furthermore, given the significance of the proper setting up of this infrastructure in its

85

initial stages of development, Development Finance Institutions are also expected to
be involved in their growth.
Transport
The budgetary allocation for transport infrastructure is summarized in Figure 14. It
is seen that the 9MP allocation for roads is lower than the preceding period. There ishowever greater emphasis on the infrastructure development of rural roads. This is inline with the Government’s initiative to increase the accessibility to rural areas inorder to narrow the urban-rural divide and to build up areas that have tourism
potential. Furthermore, road construction projects will also serve to increase industrial
efficiency of logistics of various industries such as the agricultural industry. As a result,the majority of these projects are concerned with the improvement of the physicalaspects of roads.
Figure 13. Development Expenditure and Allocation for Transport Sector,

Expenditure & Allocation(RM Million)

2001-2010 (RM million)
20,00015,00010,000
5,000
0

Urban
Transport

Rail

Ports

Airports

Rural
Roads

8MP Expenditure 18,451.40

706.6

5,270.10

2,443.00

1,779.30

2,286.10

17,303.10

1,565.50

3,634.90

1,290.00

2,868.50

3,642.40

Roads

9MP Allocation

Sub-Sector

Source: Economic Planning Unit

There are also new bridges and roads that are being proposed for construction suchas the Bridge over Sungai Terengganu to Pulau Sekati and the construction of ringroads and bypasses in Georgetown (Penang), Seremban and Johor Bahru. Additionally,
the rise in urban transport expenditure will be utilized to upgrade and expand theLight Rail Transit (LRT) and Komuter services in Kuala Lumpur and Penang where amonorail system is now being implemented.
Rail and Port expenditure has been increased in the 9MP period and this can be
attributed to the bulk of the expenditure being utilized for improvements on existing
infrastructure. Airport expenditure is expected to increase due to the need to expand
on existing airport capacity and facilities in order to manage the anticipated increase86

in the volume of tourists visiting the country and the flow of travelers through the
airport due to the increased flight frequency and roster of destinations that domestic
airlines are flying to.
Water and Sewerage
There is moderation in expenditure across the sub-sectors of water supply, rural
water and flood mitigation and lower allocation of funds to the sewerage sub-sector(Figure 15). The numerous projects under the drainage designation may be a main
factor attributable to the rise in expenditure; one of which is engaged in the restorationof a town’s drainage infrastructure. The most significant project under this sector(which is involved in the supply of water) would be the Inter-State Raw Water
Transfer Project which is a water supply initiative running from Pahang to Selangor,
scheduled to start construction during the 9MP period.
Figure 14. Development Expenditure and Allocation for Water Sector,

Expenditure & Allocation(RM Million)

2001-2010 (RM Million)
20,00015,00010,0005,000
0Water Supply

Sewerage

Rural Water

Flood Mitigation

8MP Expenditure

18,451.40

706.6

5,270.10

2,443.00

9MP Allocation

17,303.10

1,565.50

3,634.90

1,290.00

Sub-Sector

A major development in this sector with respect to infrastructure projects is that theWater Asset Management Company (WAMCo) will be established to develop future
infrastructure programs pertaining to water supply.
EnergyFor the period of the 9MP, the Government’s allocated expenditure on this sector isaround RM1.8 billion with the corresponding amount of expenditure by the NFPEs
totaling a massive RM 71.7 billion. As shown in Table 24, it is clear that actual
Government expenditure is very low in this sector with the bulk of the activities
carried out by NFPEs in this sector. This is indicative of the success of theprivatization programme.

87Table 24. Development Expenditure and Allocation for Energy Sector,
2001-2010 (RM million)
8MP Expenditure

9MP Allocation

FederalGovernment

NFPEs

Total

FederalGovernment

NFPEs

Total

Generation

664

12,139.0

12,802.7

09,506.6

9,506.6

Transmission

632.5

5,121.4

5,753.9

302.6

6,781.9

7,084.5

Distribution

357

8,313.9

8,670.9334

11,666.6

12,000.6

RuralElectrification

560.2

0.0

560.2

1,025.30

0.0

1,025.3

Others

173.2

0.0

173.2

166.9

0.0

166.9

Electricity

Oil & Gas
Upstream

0

16,70016,700.0

013,100.0

13,100.0

Downstream

031,60031,600.0

030,700.030,700.0

Source: Economic Planning Unit

However, one trend that stands out is that the government is not involved in the Oil
and Gas sector directly and the NFPEs are not involved in more development-skewed
activities such as providing rural electrification.
During the 9MP period, the Natural Gas Distribution System (NGDS) is proposed to
be expanded by about 640 km, a project which is valued at around RM640 million.
Petronas (a prominent NFPE in the Oil and Gas sector) is anticipated to spend RM30.7
billion on upgrading the oil and gas supply infrastructure, increasing the number ofservice stations and expanding downstream processing in petrochemical industry.
Due to the Government’s objective to reduce the reserve margin (excess capacity) to
20% during this period, implementation of projects approved prior to 9MP will bedeferred to the next period. Future power generation projects will go through a bidding
process where a more efficient procedure to match plant specifications with market
needs will be established.
One exciting area that the Government is hoping to enlarge and develop is themarket for renewable fuels and alternative energy sources. Given the numerous
incentive schemes (e.g. Accelerated Capital Allowance) available for assisting in thedevelopment of this segment, it would be a viable area to consider investment in, as it
is a new sector which would have substantial infrastructure outlay.

88

Schools and Hospitals
The majority of projects under the 9MP which have been offered for tender byprivate participants are related to the construction of schools and colleges. Notably,
there is a whole group of polytechnic institutions that have been offered out for tender(around 19 in total), distributed across the whole country. These projects are aimed at
upgrading the country’s human capital.
Figure 15. Development Expenditure and Allocation for Health Services,

Value of Expenditure (RM Million)

2001-2010 (RM million)
6,000
5,000
4,000
New Hospitals

3,000

Upgrading & Renovation

2,000
1,000
0
8MP

9MP
Plan

As shown in Figure 17, there is a striking trend that has emerged from one
Development Plan to another. In particular, there is no plan to increase the quantity of
hospitals, but capacity is to be increased via expansion of existing facilities. Most of the
projects that are available under concession arrangements are those that are additions
to an existing hospital or medical center (e.g. maternity ward).
Traditionally, infrastructure projects are seen to be more prudent investments thanother forms of investment available in the market, thus this characteristic does makethem ideal for bond financing. The classic example of an infrastructure project thatsuits this form of debt financing is the Independent Power Producers (IPPs). Bothgreen field projects and expansion of existing facilities in this area are seen as highly
stable investments, primarily due to the favourable terms stipulated in the Purchasing
Power Agreements (PPAs) with Tenaga Nasional Berhad and other power distributors
in the country. However, IPP construction activity is not seen to be highly active in the
9MP period due to the over-capacity the market it experiencing currently. Only IPP
commissioning is taking place and many approved projects are being deferred to alater start date.

89

There are several high value and high impact projects that have either been
identified in the 9MP or proposed by private proponents to secure government support.
These projects are described in Table 25.
Table 25. High Impact Projects Identified in the 9MP or Proposed by the Private Sector
Project
1. Trans Malay oil pipeline
project

2. High speed rail link
between Kuala Lumpur
and Johor Baru/ Singapore

3. South Johor Economic
Region (SJER)

4. Second Penang Bridge

5. Monorail systems in
Penang, Johor Bharu andPutrajaya and expansionof LRT system in Klang
ValleyDescription
This proposal was first mooted by Ken Koyama
and Yasunari Kawasaki and mentioned in astudy by Koyama (1999). It involves building an
oil pipeline to transfer 2-5 million barrels per
day of crude oil across the northern part ofPeninsular Malaysia, thus bypassing andeasing congestion in the Straits of Malacca.
Three private proposals are being consideredby the government with one of them proposing
to stockpile oil reserves in line with the recent
call to enhance energy security for theoil-dependent countries that include China,
Japan, Korea, Philippines and Taiwan.
A high speed rail system to link Kuala Lumpur
and Johor Bharu/Singapore, proposed by YTLCorporation Berhad, one of the promoters for
the Express Rail Link (ERL) that connects KL
Sentral to the Kuala Lumpur International
Airport (KLIA). The proposal is being studied by
Khazanah Berhad as directed by thegovernment
To be positioned as an international
development zone covering an area threetimes the size of Singapore, it aims to attract
high end foreign investors and develop
strategic public-private partnerships to catalyze
commercial development involving: Waterfront development
 International mixed commercial andresidential development
 Leisure and destination tourism development
 International manufacturing and logistics
development
 Education-based development and Healthcare-based development
Targeted infrastructure development underPrivate Financing Initiatives (PFIs),
privatization or government funding will beidentified.
This 24 km second bridge will help easecongestion in the first bridge that links theisland of Penang to the Mainland. Whencompleted in 2011, it will be longest bridge in
Malaysia and Southeast Asia.
Monorail systems are being planned for
Penang, Johor Bharu (likely to be under the
SJER development plan) and theadministrative township of Putrajaya

90

Indicative
Project Value(RM billion)
RM5-15 billion

RM8-12 billion

RM4.278 billion
allocated underthe 9MPRM3 billion

RM2 – RM3 billion
each8.2 The Viability of these Projects Securing Bond Financing
Long-Term Financing Requirements
Financing through the issuance of bonds is well suited for large scale, long term
projects that have well-defined cash flow streams that can be utilized to service debt
repayments. Bond financing is also used in instance where other forms of borrowing
seem too risky for the lender to bear, for example, bank loans. Since the bank loans are
funded by short-term deposits, banking financial institutions are generally reluctant tofinance projects longer than 5 or 7 years. Furthermore, bond-financed projects tend to
be large-scale undertakings. This is a characteristic of many projects in theinfrastructure and utilities sector.
Backed by the Stability of the State as Off-taker and Sponsor
The nature and extent of government involvement is usually assessed to determine
the extent of risk and the likelihood that it will be absorbed or passed to thegovernment in the event of project failure. The awarding of projects through atransparent tender system is one of the means of ensuring efficiency gains in theconstruction process and the selection of the best possible candidate for the job, thus
alleviating some construction risk. If the project is in the form of a concession, theoff-taker (i.e. the Government) will be deemed to be of a credible stature, thereby
further improving its status as a stable investment.
Presence of Sufficient Risk Mitigation Mechanisms for Investors
Besides having state sponsorship, projects are likely to have successful bondplacements if sufficient protection is provided to investors against default. Thus,
having well-structured financing schemes with adequate and well-matched financial
covenants will increase the viability of debt financing.
Stability of the Sector
Investors will also be more inclined to lend their funds to projects in sectors withrelatively stable outlook, thereby ensuring predictability and a continuous revenue
stream for debt servicing. A project which is functioning in a sector that is highly
dynamic with diverse competitive pressures causing uncertainty in the market will not
be so suited for infrastructure financing through bond issuance. Since most of the 9MP
projects have a “public goods” or “utility” nature, there is much scope for bondfinancing for these projects.

91Well-defined Cash Flows
As cash flow servicing of debt is the main aspect of project bonds that differentiatethem from being conventional bond issuances; projects with well-defined cash flow
projections will be suitable candidates for debt financing.
High Ratings
Given the considerations above (as well as additional items that are vital to theratings process), projects which are able to secure a high rating (preferably AA andabove) will have the high possibility of securing bond financing. This high rating isnecessary given the investor profile that is prevalent in Malaysia, i.e. investors who
favour the higher grade bonds. Most infrastructure projects (especially those
implemented by the Government) will possess favourable characteristics that will
enable a high bond rating to be achieved.
8.3 Risks and Opportunities for 9MP Projects Funded Through PFIs
Given the fiscal constraints faced the government and the large financing
requirements to implement the 9MP, the government has promoted the concept ofprivate financing initiatives (PFI).
The PFI is being introduced in the 9MP to offer more opportunities for private sector
participation, particularly the Bumiputeras, while safeguarding consumer interestsand enhancing economic efficiency and productivity, in development of infrastructure and utilities;
 management, operations and maintenance to improve the delivery of infrastructure
facilities and public services, which include education and training; and privatised projects and entities.
The PFI involves several or all of the following elements as elaborated in the 9MP
document:
 transfer to the private sector the responsibility to finance and manage a package ofcapital investment and services including the construction, management,
maintenance, refurbishment and replacement of public sector asset such asbuildings, infrastructure, equipment and other facilities, which creates a standalone business.

92 creation of asset and delivery of a service by the private sector to the public sector
client with clear output specifications, maintenance, performance indicators anddistribution of risks.
 payment to the private sector will be in the form of lease rental charges,
corresponding to the level, quality and timeliness of the service provision
throughout the concession period.
 lease rental payment is structured to guarantee a total return to theconcessionaire’s

capitalinvestment

expenditures

includingfinancingcost

repayment and profit to investment.
 asset and facilities will be transferred to the public sector at the end of theconcession period.
 long term financing schemes established through local financial institutions,
including the Employees Provident Fund.
 prospective companies must furnish evidence of technical and management
expertise and have access to capital, including having a minimum paid-up capital of
RM250,000 when proposing a project and provide documentary proof of financial
support within 12 months upon signing of an agreement.
 project viability and sustainability will be based upon optimal distribution of risks
between the public and private sectors with the government continuing to facilitate
project implementation, particularly through legislation and land cost support
while the private sector's capability will be utilized in managing risks associatedwith design, construction, operations and maintenance.
Figure 16. Risks and Opportunities for 9MP projects to be Financed under PFI
Investor risk aversion

Use of Islamic-Typefinancing structures

Under-developed
capital market

Avenues for foreign
financing throughmultilateral organisations

Illiquid secondary
marketLack of domestic
investible funds and thechallenge to raise level offoreign participation

Infrastructure
Project

Insufficienttransparency in tender
process

Less burden on
Government budgets interms of development
expenditure
Higher level of private
participation in terms of
economic activity as wellas financing

Sector-specific market
challenges

OPPORTUNITIESCHALLENGES

93

Challenges
Investor risk aversion deterring investors from investing in certain projects that are
not highly rated can put a damper on investment activity and does pose a risk to thefinancing of these projects through this method. That is why it is imperative that any
risks that are apparent given the nature of the project should be mitigated as early on
as the structuring of the terms of debt issuance so as to obtain an adequate rating.
As mentioned earlier, the Malaysian bond market is maturing gradually,
consequently, certain features such as the investor risk aversion and lack of avenues
for investors who wish to trade their securities (secondary market) will be less of animpediment to investment activity in the long run.
There is also the notion of insufficient private funds in the domestic market to satisfy all
infrastructure needs of the economy. Thus, there have been on-going efforts to seek
Official Development Assistance (ODA) and to attract foreign fund inflow into thecapital market or through equity stakes in infrastructure projects, in order to expand
the supply of funds.
More transparency in the tender process is required in order to boost investor
confidence to increase their participation in these Government-Linked infrastructure
projects. This uncertainty or level of imperfect information can pose challenges inraising finance. Thus, credible concessionaires would be a good signal to the market ofthe viability of the project.
In all infrastructure projects, there are always risks concerned with the stability ofthe sector in which the infrastructure project is positioned in, which need to beaccounted for. If sufficient covenants and credit support mechanisms are put in placein the terms of finance structuring and in any legal aspects of the contract, then mostof this risk should be satisfactorily mitigated.
Opportunities
Islamic Financing is no longer a niche product in our market but has become widelyused and is seen to be well-suited for infrastructure financing. Certain structures suchas the “Istisna” are especially ideal for projects that have construction risk which is oneof the main characteristics of infrastructure financing. There is an ample opportunity
for project sponsors to tap into this market for funding especially from the pool of‘Petro’-dollars coming in from Arab nations.

94Furthermore, other foreign sources of financing should see this sector as one that is astable investment with potentially high returns. Risk can be mitigated by working
through or in collaboration with multilateral agencies such as JBIC and MIGA.
The Government is no longer the sole bearer of risk with regards to theimplementation of these infrastructure projects when they become open to Private
Financing Initiatives; thus this will also relieve pressure on the Government budget andallocation of funds may be allocated to other areas that generate higher marginal
social benefits to society.
Finally, greater participation by private entities both through direct financing or theactual implementation of the project, will create greater economic activity in terms ofprivate investment and accelerate economic growth and income across the economy.
This is turn will maximize returns to investors. Hence, the investment ininfrastructure projects not only creates opportunities through the direct returns thatcan be derived from them, but also the security and robustness of these returns toinvestors through the multiplier effects that they create.

95

9.

RECOMMENDATIONS FOR THE DEEPENING OF THE BOND MARKETFOR PRIVATE INFRASTRUCTURE DEVELOPMENT BASED ON THE
MALAYSIAN EXPERIENCE

9.1 Key Challenges and Requirements
Among the key challenges identified in infrastructure financing in Malaysia are:•huge financing requirement that exceeds the government financing capacity due toits fiscal deficit position.

•lack of investor sophistication as reflected by the continuing risk aversion in thebond market whereby issuers of high quality papers that are rated double A canaccess the bond market.

•

absence of a financial guarantor institution to provide credit enhancements to bondissues.

•need for innovative project financing structures that could mitigate project risk
while minimizing government's contingent liabilities.

9.2 Suggestions to Enhance the Role and Participation of the Public Sector
Given the above challenges, there is a need to focus on enhancing funding efficiency
for infrastructure projects in Malaysia. There are three areas that the Public Sector
could consider in order to enhance its role and participation in Private Sector
infrastructure financing in the country.
A. Covering Construction Risk for Greenfield Projects
Greenfield projects, particularly those involving a strong off-take counter party,
often raise financing for their projects via the ringgit bond market. However due totheir green field status, despite all the necessary arrangements to address construction
risk (fixed sum contract, cost overrun standby line, general construction risk insurance
and the use of a reputable contactor), the highest rating achieved for a green fieldproject is AA3.
As seen in the past, only with the successful completion of construction works, will
the bonds be upgraded to the counter-party’s rating. For the majority of the IPP
projects in Malaysia, the ratings have been or will be upgraded to Tenaga’s AA1 rating
upon the completion of the construction works.

96As the funding packages for the whole project are finalized before constructioncommences, the pricing for the bonds and the coupon rates are arranged on the basis of
the AA3 rating incorporating the construction risk which is only in existence during
the first few years. However, the higher coupons would have been locked in until thematurity of the debt instruments issued. There also exists the absence of suitablefinancial guarantee or insurance companies that are able to underwrite the completionof projects of this magnitude.
Thus, we see an opportunity for a strong entity who understands the risk elements
pertaining to the construction work to provide a “construction performance guarantee”
which covers the cost overrun, timeline delivery and performance specifications toenhance the project debt’s ratings during the construction phase. This allows for the
project bonds to be issued at higher ratings and thus lower financing costs for the lifeof the project. Considerable savings or improvement to the project economics can bemade here as the higher guarantee fees paid will only be payable for the initial years.
B. Extending Project Funding Tenures/Addressing Refinancing Risk
As with other forms of financing, debt funding tenure plays a critical role indetermining the affordability of building or owning an asset. In the highly liquid
ringgit bond market, we see a severe limitation in the appetite for very long term
bonds. Not many ringgit bonds have tenures exceeding 10-15 years.
This is particularly important for infrastructure projects which are often built for a
useful life of 30 years and above have access to financing tenures that match the asset.
Unfortunately, in Malaysia when a typical Power Purchase Agreement is signed for a
21-year period and a toll road concession agreement for 30 years, the shorter bondtenures exert tremendous pressure on the project economics to fully repay the projectdebt within the first 15 years (considering a construction period of 3-4 years).
There are several ways to provide assistance in this area. First is to invest in thelonger dated tranches of the debt instruments to be issued. Alternatively, elements toaddress refinancing risk at the maturity of the limited tenured debt instruments canbe introduced to facilitate a matching of the funding tenures with the concession
periods or useful life of the asset. Another complementary initiative to support thestructuring and pricing of financing instruments such as bonds, is for the Government
to issue more bonds with longer tenures so that these can serve as benchmarks for theprivate sector. This will also assist the market in ‘price discovery’ given the presence ofa greater volume of longer-term bonds in the market than in the situation previously.

97

C. Bridging Financing Gaps
Post 1997-98 financial crisis, most investors of project finance bonds have turnedrisk adverse, only seeking bonds rated AA and above. As such, while some projects
with slightly higher risk profiles and lower equity support may still remain bankable
but at a lower investment grade rating of A or even BBB, their access to the debt
capital market has disappeared.
Of late, project promoters have not been able to secure concessions from theGovernment at terms which are equally favourable as the ones signed previously. We
have progressed from the initial projects where traffic guarantees were provided forgreen field highways and unconditional “take or pay” terms were granted to
Independent Power Producers. These make the concessions slightly more commercial
in nature and appropriately, the commercial risks associated the projects become a key
consideration amongst investors.
With increased risk profiles of projects of late combined with more stringent
requirements of bond investors with regards to risk appetite, the resulting effect is ahigher amount of equity capital to back the projects. Many project promoters are not ina position to pump in the adequate equity capital for projects often resulting in raising
additional debt to fund their equity contribution resulting in a double leveraging effectin addition to their working capital requirements for the construction works.
To address the current stalemate, it may be feasible to consider setting up a Project
Finance Equity Fund to lend equity support to project promoters. However, with theimplementation of such a fund, projects in Malaysia qualifying for support from themust have transparent project cost disclosures and ideally, competitive bidding for theconstruction works. With transparency and good corporate governance, stronger
returns to shareholders will be assured thus ensuring the success of such a fund.
In addition, measures to address the seemingly high risk aversion prevailing amongbond investors will need to be taken. One possible solution is the setting of a high yieldbond fund (not to be mistaken by junk bond funds which buys non-investment gradebonds) to focus on the A and BBB-rated bonds and managed by professionals who arewell versed with the credit risks of companies. This outsourcing of funds from the
Employees Provident Fund, Malaysia’s largest bond investor as well as otherinstitutional investors will help create a market for these purpose and lure moremarket participants into this sphere.

98

REFERENCES

Economic Planning Unit (Prime Minister’s Department), 2006. Ninth Malaysia Plan.
Estache, A. and AnaGoicoechea, 2005. A “Research” Database on Infrastructure
Economic Performance,” World Bank Policy Research Working Paper 3643, June
2005.
Lee, Cassey, 2004. Competition Policy in Malaysia. Working Paper Series Paper No. 68,
Centre on Regulation and Competition, Institute for Development Policy andManagement, University of Manchester.
Koyama, Ken, “Oil Supply Security Policy Initiatives taken by the Asian APEC”, Study
was commissioned by the Agency of Natural Resources and Energy, Ministry ofInternational Trade and Industry, Japan, FY1999.
Kim, Yun-Hwan, 2005. Financing Infrastructure Development: Asian Developing
Countries Need to Tap Bond Markets More Rigorously.
Poverty & Development Division (UNESCAP), 2004. Enhancing Regional Cooperationin Infrastructure Development including that related to Disaster Relief.
Rating Agency Malaysia Berhad, February 2007. RAM Bond Newsletter.
Sidgwick, E, 2003. Strengthening Recovery and Outlook - Malaysia.
Thillainathan, R, 2004. Employees Provident Fund of Malaysia: Asset Allocation,
Investment Strategy and Governance Issues Revisited.
Yeah, Kim Leng, 1993. “Reform of State-owned Enterprises: The Privatization
Experience of Malaysia.” Institute of Strategic and International Studies (ISIS)
Malaysia. Paper presented at the seminar on “The Reform of State-owned
Enterprises - Privatisation and the Experiences of Southeast Asian Countries,’organized by the Central Institute of Economic Management and Swedish
International Development Agency (SIDA) and held in Hanoi, Vietnam, May 27-28,
1993.
April 17, 2007
(JBIC_finalreport_9April2007)99

Appendix I.

Chronology of Changes in the Regulatory Framework for the
Malaysian Ringgit Bond Market

Date

Description

Oct 2005

Bank Negara Malaysia (BNM) issued the Guidelines on Regulated Short-Selling of
Securities in the Wholesale Money Market. The introduction of regulated short-selling ispart of BNM's continuous effort to further develop a liquid bond market with an active
repo and securities borrowing and lending. This would also promote better risk
management by facilitating hedging of interest rate risk.

Jan 2005

BNM announced the usage of repos as a monetary policy instrument. This would
encourage market participants to actively use repos as an alternative funding instrument,enhance trading strategies and strengthen risk management capabilities by encouraging
banks to move towards collateralised inter-bank transactions.

Oct 2004

Commercial banks and merchant banks were allowed to deduct their holdings of the
Ringgit marketable debt securities in the trading book from eligible liabilities (EL) in thecomputation of Statutory Reserve Requirement (SRR). This would reduce the holding
cost of these papers and promote secondary trading of such securities and level theplaying field for commercial banks and merchant banks with that of the other players inthe bond market.

Sep 2004

Recognising the significant development of Cagamas since its inception, the regulatory
treatment for Cagamas securities was revised and Principal Dealers were also no longer
required to bid for the primary issuance of Cagamas papers. These would promote a
more market-based pricing of Cagamas securities and provide more flexibility for
Cagamas to package new products and widen its investor base.

July 2004

Securities Commission (SC) introduced the Guidelines on the Offering of Islamic
Securities (IS Guidelines). With the release of the IS Guidelines, the PDS Guidelines nolonger apply to the issuance of Islamic securities in Malaysia.

Apr 2004

Introduction of a new interest rate framework. The new interest rate framework
represents a change in the system of implementing monetary policy and promotes more
efficient pricing by banking institutions. It does not represent a change in monetary
policy.
Under the new framework, each banking institution will now announce its own BLR
based on its cost structure and business strategies. Banking institutions will also nolonger be subject to the maximum spread of 2.5 percentage points above BLR. This is
aimed at promoting more efficient pricing of the spectrum of financial products being
offered.
BNM liberalised its foreign exchange regulation allowing multilateral development banks(MDBs) or multilateral financial institutions (MFIs) to issue Ringgit denominated bonds in
the Malaysia capital market. These bonds carry 0% risk weight under the risk-weighted
capital ratio framework and allowed deduction from eligible liabilities for computation of
statutory reserves requirements. For resident insurers, these bonds are qualified as low
risk assets to support their margin of solvency.

Dec 2003

SC announced the release of the Guidelines on the Offering of Structured Products. The
introduction of these guidelines will facilitate universal brokers, merchant banks,
commercial banks including Islamic banks and performance-guaranteed Special
Purpose Vehicles established by any of the above-mentioned institutions to issue"structured products".

Mar 2003

The Malaysian capital market entered the final phase of its move from merit-based to a
DBR framework for fund raising. The SC released seven revised fund-raising guidelines,
which includes the PDS Guidelines and the ABS guidelines.

Oct 2002

Universal Brokers were allowed to participate in the unlisted debt securities in order toexpand market players in the domestic bond market. Following this measure, Universal
Brokers have been admitted as members of FAST, BIDS and RENTAS.

100

Date

Description

Dec 2001

Issuance of Guideline on Securities Borrowing and Lending (SBL) Programme under
RENTAS and Guidance Notes on Repurchase Agreement Transactions. The Guideline
aims to provide a uniform set of rules to govern the conduct and obligations of the market
participants with respect to the securities borrowing and lending transactions and repo
and reverse repo transactions.

Oct 2001

Rules on FAST, BIDS & RENTAS (2001) were issued to replace the Rules issued in
1999.

Feb 2001

The Capital market Masterplan was launched. It sets the strategic position and future
direction of capital market development for Malaysia.

Jul 2000

Following the amendments to the Securities Commission Act 1983, the Companies Act
1965, the Banking and Financial Institutions Act 1989, the Futures Industry Act 1993 andthe Securities Industry (Central Depositories) Act 1991, the Securities Commission (SC)became the single regulator for all fund raising activities. The SC is the approving andregistering authority for prospectuses in respect of all securities other than securities
issued by unlisted recreational clubs. The Registrar of Companies is responsible for thelodgement of prospectuses.
The introduction of the following guidelines and regulations, by the SC, which took effecton 1 July 2000:
 Guidelines on the Offering of Private Debt Securities
 Guidelines on Prospectus Content for Debentures
 Securities Commission (Shelf Registration Scheme for Debentures) Regulations
2000
 Guidelines on Minimum Content Requirement for Trust Deeds
 Guidelines on Prospectuses for Equity ad Equity-linked Issues
The Controller of Foreign Exchange issued the Exchange Control Guidelines on theIssuance of Private Debt Securities for Lead Arrangers to ensure compliance with theexchange control conditions/requirements under the new regulatory framework.
The Banking and Financial Institutions (Amendments of Definition of Deposit) Order 2000
has been gazetted effective as of 1 July 2000. With this Order, non-licensed institutions
would be allowed to enter into repurchase agreements (repo) transactions with licensed
institutions under the Banking and Financial Institutions Act 1989.

Apr 2000

In a move to spur fund raising activities in the bond market, a general permission was
granted by the Controller of Foreign Exchange for the issuance of private debt securities
so long as the proceeds from the bond issues were not used to finance investments
abroad or refinancing off-shore borrowings.

Oct 1999

The Capital Market Master Plan was initiated to chart the strategic positioning and future
direction of the Malaysian capital market for the next ten years.

Jul 1999

Code of Conduct and Market Practices for Malaysian Scripless Securities Market Under
the Real Time Electronic Transfer of Funds and Securities (RENTAS) System wereintroduced to facilitate the conversion from the SPEEDS system to the RENTAS system.

Jun 1999

The National Bond Market Committee (NBMC) was established to provide the policy
direction and to rationalise the regulatory framework for the development of the bondmarket. As an initial step to rationalise the regulatory framework, NBMC announced that
the Securities Commission would be the single regulatory authority for the supervisionand regulation of the corporate bond market.
The members of NBMC consist of the Ministry of Finance, Economic Planning Unit of thePrime Minister's Department, Bank Negara Malaysia, Securities Commission, theRegistrar of Companies and the Malaysia Stock Exchange.

Aug 1996

Amendment to the Companies Act 1965 to widen the investors' base and to simplify therequirements on the submission of prospectus.

Mar 1993

The setting up of Securities Commission following the Government's decision to develop
a more focused regulatory authority over an increasingly sophisticated capital market.

101

Date

Description

Jan 1990

Code of Conduct and Market Practices for Scripless Trading in the Malaysian Securities
Market were introduced to lay down the basic market rules.

Jan 1989

Introduction of The Guidelines for the Issuance of Private Debt Securities to ensureorderly development of the market and to protect investors' interest.

Source: Bank Negara Malaysia

102Appendix II. Bond Market Development Initiatives
Date

Initiative

8 Aug 2005

The issuance of RM2.05 billion Islamic Residential Mortgage-Backed Sukuk Musyarakah(IRMBS) by Cagamas MBS Berhad, represented the world's first rated residential
mortgage-backed securities to be issued under Islamic principles. This is the second
issuance of asset-backed securities by CMBS and backed by a pool of the Government's
staff Islamic home financing. The introduction of IRMBS added new asset class forinvestors' preference and demonstrated Government's continuous and innovative effort tobroaden and deepen the Islamic capital market.
Daily indicative YTM for Government securities (conventional & Islamic) was implemented
as to provide continuous market value information on Government securities to the market.

25 Jul 2005
Publication of Indicative YTM on private debt securities based on ratings and Selected
Papers remain on a weekly basis i.e. on the 7th, 14th, 21st and end of every month.
14 Jul 2005

The first issuance of 20-year MGS amounting to RM1billion. Given the current excess
liquidity, the longer dated MGS attracted good demand from investors. It will also lengthen
the tenure of the MGS yield curve.

Issuance of RM760 million Ringgit-denominated Wawasan Bonds by the International Bank
12 May 2005 for Reconstruction and Development (IBRD), also known as The World Bank. The issuance
would contribute to further broaden and develop the country’s Islamic capital market.
22 Apr 2005

Repo Facilities for PD was introduced with main purpose to facilitate market making
activities for PDs and to promote competitive pricing. Repo auction of benchmark
government securities for PD provide an avenue for PDs to obtain government securities ifthey are caught short in the process of performing market-making function.

1 Apr 2005

Further liberalisation of foreign exchange administration rules to facilitate non-residents andresidents cross-border investments. Income from investment in Ringgit denominated debt
securities is exempted from withholding tax.

Issuance of the International Finance Corporation (IFC)’s Wawasan Islamic bonds. The
MYR 500 million ‘Wawasan Bonds’ (approximately US$132 million equivalent) three-yearbonds were issued as Bai Bithaman Ajil Islamic Securities. IFC is the first supranational to
13 Dec 2004 issue Islamic securities in the Malaysian market, and first supranational to issue domestic
Islamic bonds in any market. This transaction provides a benchmark for future high-grade
issuers and helps deepen overall the capital market and develop Islamic finance in
Malaysia.
Issuance of a new asset class, the Asian Development Bank (ADB)’s Putra bonds, marking
a significant development in the domestic bond market. The RM400 million fixed rate bonds
was the first issue by a foreign entity, the first supranational issue, and the first issue rated
10 Nov 2004
triple-A by Fitch, Moody's and Standard & Poors, the bonds which were offered through abookbuilding process generated strong demand with total bids amounting to more thanRM2.6 billion or 6.5 times the issue amount.

20 Oct 2004

The first issuance of Residential Mortgage Backed Securities (RMBS) by Cagamas MBS
Berhad, a wholly owned subsidiary of Cagamas Berhad which were backed by Government
staffs’ housing loans. The securitisation represents a new strategic initiative to broaden thedomestic bond market with a new asset class whilst simultaneously creating a benchmark
yield curve for long-term Asset Backed Securities bonds. This inaugural RMBS issue is
expected to enhance secondary trading of Asset Backed Securities (ABS). This is in linewith the Government’s effort in developing a vibrant and liquid bond market.

17 Sept 2004

The issuance of Islamic Treasury Bills has further added depth to the development ofIslamic securities market.

Source: Bank Negara Malaysia (https://fast.bnm.gov.my/fastweb/public/MainPage.do)103

Appendix III.

Guidelines on The Offering of Private Debt Securities
REVISED EDITION – 26 July 2004
EFFECTIVE DATE – 26 July 2004

CONTENTS
1.0 INTRODUCTION
2.0 SUBMISSION OF PROPOSALS UNDER THESE GUIDELINES
3.0 OFFERINGSOFPRIVATEDEBTSECURITIES

UNDER

A

SHELF

REGISTRATION SCHEME
4.0 DOCUMENTS/INFORMATION REQUIRED
5.0 ELIGIBLE PERSONS
6.0 OTHER REGULATORY APPROVALS
7.0 RATING REQUIREMENT
8.0 UNDERWRITING
9.0 MODE OF ISSUE
10.0 UTILISATION OF PROCEEDS
11.0 ADDITIONAL REQUIREMENTS FOR DEBT PROGRAMMES
12.0 TIME FRAME FOR APPROVALS FROM THE SC
APPENDIX 1
1

Information to Be Submitted for the Purpose of Obtaining the Approval of the SC

2

Information to Be Submitted after Obtaining Approval from the SC

3

Principal Terms and Conditions of the proposal

A-1
APPENDIX 2 (a) Declarations by the Issuer
APPENDIX 2 (b) Declaration by the Principal Adviser
A-6
A-9
1.0 INTRODUCTION
1.01 Effective as of 1 July 2000, any person who issues, offers for subscription orpurchase, or makes an invitation to subscribe for or purchase (“issue, offer ormake an invitation”), debentures would require the approval of the SC under
section 32 of the Securities Commission Act 1993 (SCA). This would include
private debt securities, such as, bonds, notes, loan stocks and commercial papers,
whether convertible into equity or not and whether redeemable or otherwise.
1.02 For the purposes of the Guidelines on the Offering of Private Debt Securities, anapproval from the SC would not be required if the transaction is exempted under104

Schedule 1 SCA or if the instrument or transaction is exempted from thedefinition of “debenture” under sub-section 2(1) SCA.
1.03 These guidelines stipulate the criteria which must be met with regard to any
issue, offer or invitation of private debt securities which comes under the ambit of
the SCA. However, any issue, offer or invitation of Islamic securities would not
fall under these guidelines but under the Guidelines on the Offering of Islamic
Securities released by the SC on 26 July 2004.
1.04 Any person who seeks the approval of the SC under these guidelines should also
ensure that such a person complies with the registration and disclosure
requirements in respect of prospectuses and trust deeds as may be applicable
under the SCA.
1.05

For the purposes of these guidelines:(a) the term “debenture” has the meaning assigned to it under subsection 2(1) SCA
and is used synonymously with the term “private debt securities”; and(b) The terms “adviser” and “principal adviser” have the meanings assigned to it
under the Policies and Guidelines on Issue/Offer of Securities (Issues
Guidelines).
1.06 A public company should also ensure that the requirements in the Issues
Guidelines applicable to it in general, are complied with in respect of all
corporate transactions undertaken by it. Further, any issue, offer or invitation ofprivate debt securities by a public company which is(a) capable of being converted into equity howsoever (example: convertible loan
stocks, irredeemable convertible loan stocks and convertible bonds); or(b) part of a composite scheme, would be subject to the requirement stipulated in
the Issues Guidelines.
2.0

SUBMISSION OF PROPOSALS UNDER THESE GUIDELINES

2.01 Below are categories of persons that may act as principal adviser for the following
types of proposals: Merchant banks, commercial banks, universal brokers or
discount houses• All proposals of private debt securities that are not capable of being converted into
equity howsoever.
Merchant banks or universal brokers• All proposals of private debt securities that are capable of being converted into
equity.
• All proposals of private debt securities together with warrants.
• All proposals of private debt securities which are part of a composite scheme.

105

3.0

OFFERINGS OF PRIVATE DEBT SECURITIES UNDER A SHELF REGISTRATIONSCHEME

3.01 Notwithstanding paragraph 1, any issue, offer or invitation of private debt
securities under a shelf registration scheme can only be made in respect ofprivate debt securities which are not capable of being converted into equity
howsoever and which have no warrants attached.
3.02 Where a person seeks to issue, offer or make an invitation for private debt
securities under a shelf registration scheme, such a person must comply withthese Guidelines on the Offering of Private Debt Securities as well as the
Securities Commission (Shelf Registration Scheme for Debentures) Regulations
2000 and any guidelines in relation thereto.
4.0

DOCUMENTS/INFORMATION REQUIRED

4.01 In relation to any issue, offer or invitation made pursuant to these guidelines, theissuer and principal adviser must submit to the SC such documents andinformation as set out in Appendix 1 as well as declarations as set out inAppendix 2.
4.02 Additionally, where the Issues Guidelines would apply to an issue, offer or
invitation of private debt securities by a public company, the issuer and principal
adviser shall submit such additional information and documents as may berequired under the Issues Guidelines.
4.03 The SC may also require additional information from the issuer and its principal
adviser, including due-diligence reports and rating reports if applicable, forpost-vetting purposes at any time.
5.0

ELIGIBLE PERSONS

5.01 Any person who is a corporation within the meaning of sub-section 2(1) SCA iseligible under these guidelines.
5.02 This means any body corporate formed or incorporated or existing within
Malaysia or outside Malaysia and includes any foreign company but does notinclude(a) any body corporate that is incorporated within Malaysia and is by notice of the
Minister published in the Gazette declared to be a public authority or an
instrumentality or agency of the public Government of Malaysia or of any Stateor to be a body corporate which is not incorporated for commercial purposes;(b) any corporate sole;106

(c) any society registered under any written law relating to co-operative societies;or(d) any trade union registered under any written law as a trade union.
6.0

OTHER REGULATORY APPROVALS

6.01 All necessary approvals in relation to the issue, offer or invitation from otherregulatory bodies, including the Controller of Foreign Exchange, must be
obtained prior to the submission of any written declarations and information to
the SC under these guidelines. Any conditions imposed by such regulatory bodies,
if applicable, must continue to be complied with throughout the tenor of theprivate debt securities approved under these guidelines.
7.0

RATING REQUIREMENT

7.01 All issues, offers or invitations that come within the scope of these guidelines
must be rated by a rating agency recognised by the SC. An indicative rating musthave been obtained by the issuer at the time of submission of the declarations
and information to the SC pursuant to paragraph 4.01.
7.02 Notwithstanding paragraph 7.01, a rating is not required for any issue, offer or
invitation of(a) irredeemable convertible loan stocks; or(b) such private debt securities(i)which are non-transferable and non-tradable; and(ii) whose investors do not require a rating.
In the case of private debt securities falling under paragraph 7.02(b) the principal
adviser must confirm in writing to the SC that both criteria have been met.
7.03 Where the credit rating of any issue, offer or invitation is below investment grade,the issuer must disclose the extent of credit risk to investors and their advisers inorder to evaluate the risks relating to the private debt securities.
8.0

UNDERWRITING

8.01 The underwriting of any issue, offer or invitation shall be decided by the issuer
and its principal adviser.
8.02 In the event that the issuer and its principal adviser should decide that nounderwriting or only partial underwriting is required, the issuer must state theminimum level of subscription necessary to achieve the funding objectives of theissuer.
8.03 Paragraph 8.02 need not apply where-107

(a) the utilisation of proceeds is solely for working capital purposes;
and(b) the issuer has in place alternative funding arrangements.
8.04 Unless otherwise allowed in writing by the SC, where any issue, offer or
invitation is under-subscribed and cannot meet the minimum level ofsubscription as required under paragraph 8.02, the issue, offer or invitation must
be aborted and any consideration received for the purposes of subscription, whereapplicable, must be immediately returned to all subscribers.
9.0

MODE OF ISSUE

9.01 All issues of private debt securities under these Guidelines must be reported
and/or tendered on the Fully Automated System for Issuing/Tendering(“FAST”)
unless a listing is sought on any Malaysian stock exchange. The issuer andprincipal adviser must ensure that the issue complies with all rules andrequirements of FAST.
9.02 Save for paragraph 11.01, all issues of private debt securities that are subject tothese guidelines must be made under the Real Time Electronic Transfer of Funds
and Securities (“RENTAS”) system unless a listing is sought on any Malaysian
stock exchange. The issuer and principal adviser must ensure that the issuecomplies with all rules and requirements of the RENTAS system.
10.0 UTILISATION OF PROCEEDS
10.01 Any funds raised from any issue, offer or invitation in Malaysia must not bechannelled to finance such activities as may be announced by the National Bond
Market Committee from time to time.
10.02 Funds raised in Malaysia by any person, including funds raised by any
nonresident and non-resident controlled company, as defined under ECM
Notices 1 and 8 respectively, shall comply with any requirements andregulations as may be issued by the Controller of Foreign Exchange from time totime.
11.0 ADDITIONAL REQUIREMENTS FOR DEBT PROGRAMMES
11.01 Where a debt programme involves an issuance of commercial papers or a
combination of medium term notes and commercial papers(a) the tenor for such programmes must not exceed 7 years; and(b) the issuance of private debt securities under the programme is not required tobe made under the RENTAS system.

108

11.02 In all other debt programmes, (for example, stand-alone MTN programmes) the
7-year tenor restriction will not apply. However, issuers must state upfront thesize and tenor of the programme at the point of submission to the SC.
11.03 In all debt programmes falling within paragraphs 11.01 and 11.02, issuers arealso required to disclose to prospective investors the following information prior
to each draw-down:• Size of issue• Utilisation of proceeds• Minimum level of subscription (where applicable)• Tenor• Revisions of the rating, if any, since the date of the last draw-down
12.0 TIME FRAME FOR APPROVALS FROM THE SC
12.01 The SC would give its approval within 14 working days from the date of receipt
of all declarations, complete information and documentation as required underthese Guidelines in the following cases:(a) Any issue, offer or invitation in respect of private debt securities that are notcapable of being converted into equity howsoever;(b) Any issue, offer or invitation in respect of private debt securities, together withwarrants, that are not capable of being converted into equity howsoever; and(c) Any issue, offer or invitation of private debt securities by a private company.
12.02 In circumstances where the Issues Guidelines would apply to the issue, offer or
invitation of private debt securities, the time frame for approval by the SC set
out under those Guidelines would apply.
12.03 Except in the case of a shelf registration scheme or a debt programme, any
approval given by the SC under these guidelines must be implemented within
six months from the date of the approval of the SC.
12.04 In the case of a shelf registration scheme or a debt programme, the initialdraw-down must be made within 2 years from the date of the approval of the SC.

109

APPENDIX 1
1.0 Information to Be Submitted for the Purpose of Obtaining the Approval of the SC
1.01 Application letter disclosing the following items:(a) Background information on the Issuer and/or Originator in the case of an
Asset-Backed Securities (ABS) issue;(b) Profile of Directors of Issuer;(c) A description of the transaction and structure of the issue;(d) Details of the utilisation of proceeds. If proceeds are to be utilised for project,details of the project;(e) A schedule of utilisation of the issue proceeds;(f)

Details of expenses for the issue;(g) Waiver(s) from complying with PDS Guidelines and/or specific approval
pursuant to the Securities Commission Act 1993 sought and obtained from theSC for the issue (where applicable);(h) Conflict of interest situations and appropriate mitigating measures;(i)

For issuances made for the purpose of refinancing an existing PDS issue,
information on the existing PDS issue;(j)

Any other material information in relation to the issue; and(k) Names, telephone numbers and facsimile number of the officers-incharge ofPrincipal Adviser for the issue.
1.02 Principal terms and conditions of the Proposal
1.03 Principal terms and conditions of warrants, in the case of a PDS issue withwarrants
1.04 Issuer’s and principal adviser’s declaration (Appendix 2)
1.05 Principal adviser’s confirmation on compliance with all requirements of theController of Foreign Exchange in accordance with the Exchange Control
Guidelines
1.06 Latest audited accounts of the issuer
1.07 Compliance checklist on the Guidelines on the Offering of Private Debt Securities
1.08 In the case where the Issuer is a public company – Declarations in accordancewith Chapter 4 of the Issues Guidelines
1.09 In the case of a PDS with warrants issue:(a) Term and conditions of the warrants;(b) Financial effects of the warrants issue;(c) Rationale for the attachment of warrants; and(d) Compliance checklist on the Issues Guidelines with respect to warrants issue.

1102.0 Information to be Submitted after Obtaining the Approval of the SC
2.01 In the case of debt programmes, issuer’s notification to the SC of the following
information following each draw-down:(a) Size of issue;(b) Mode of issue;(c) Utilisation of proceeds;(d) Minimum level of subscription (where applicable);(e) Tenor;(f)Actual yield or price; and(g) Revisions of the rating, if any, since the date of the last draw-down
3.0 Principal Terms and Conditions of the Proposal
3.01 Background Information(a) Issuer
(i)

Name

(ii)

Address(iii) Business registration no.
(iv) Date/place of incorporation(v)

Date of listing (in case of a public listed company)(vi) Status : (resident/non-resident controlled company: Bumiputera/non-Bumiputera controlled company*(vii) Principal activities(viii) Board of directors(ix) Structure of shareholdings and names of shareholders or, in the case of apublic company, names of all substantial shareholders(x)Authorised and paid-up capital.

(b) Originator (in the case of asset-backed securities)
(i)

Name

(ii)

Address(iii) Business registration no.
(iv) Date/place of incorporation(v)

Date of listing (in case of a public listed company)(vi) Status : (resident/non-resident controlled company: Bumiputera/non-Bumiputera controlled company*(vii) Principal activities(viii) Board of directors(ix) Structure of shareholdings and names of shareholders or, in the case of apublic company, names of all substantial shareholders

111

(x)

Authorised and paid-up capital.

3.02 Principal Terms and Conditions(a) Names of parties involved in the proposed transaction, (where applicable)(i)Principal adviser(s)/lead arranger(s)(ii)

Arranger(s)(iii) Valuers(iv) Solicitors(v)

Financial adviser(vi) Technical adviser* as defined in Guidance Note 6 of the Issues Guidelines(vii) Guarantor(viii) Trustee(ix) Facility agent(x)

Primary subscriber(s) and amount subscribed (where applicable)(xi) Underwriter(s) and amount underwritten(xii) Central Depository(xiii) Paying Agent(xiv) Reporting Accountant(xv) Others (please specify)(b) Facility description(c) Issue size (RM)(d) Issue price (RM)(e) Tenor of the facility/issue(f)Interest/coupon (%) (please specify)(g) Interest/coupon payment frequency(h) Interest/coupon payment basis(i)

Yield to maturity (%)(j)

Security/collateral (if any)(k) Details on utilisation of proceeds(l)Sinking fund (if any)(m) Rating• Credit rating assigned ([Please specify if this is an indicative rating)• Name of rating agency(n) Form and denomination(o) Mode of issue(p) Selling restriction(q) Listing status(r) Minimum level of subscription (RM or %)(s) Other regulatory approvals required in relation to the issue, offer or invitation
and whether or not obtained (please specify)112

(t) Conditions precedent(u) Representations and warranties(v) Events of default(w) Principal terms and conditions for warrants (where applicable)(x) Other principal terms and conditions for the issue113

Appendix 2 (a)Declaration by the Issuer
Date: (Date of Application)
The Chairman
Securities Commission
Dear Sir
ISSUER …(Name of Issuer)…
Declaration Pursuant to:• Paragraph 4.01 of the Guidelines on the Offering of Private Debt Securities; and• Paragraph 16.02(a) of the Policies and Guidelines on Issue/Offer ofSecurities *We, (Name of Issuer)…. are proposing to undertake the following proposals:(a) ………..
(b) ………..
(c) ………..
(hereinafter referred to as “the Proposal”).
2. We confirm that after having made all reasonable enquiries, and to the best of ourknowledge and belief, there is no false or misleading statement contained in, ormaterial omission from, the information that is provided to the adviser(s)/expert(s)or to the SC in relation to the above Proposal.
3. We declare that we are satisfied after having made all reasonable enquiries that
the Proposal is in full compliance with the following:(a) The Policies and Guidelines on Issue/Offer of Securities1;(b) The Guidelines on the Offering of Private Debt Securities;(c) The Guidelines on the Offering of Asset-Backed Securities as may be applicableto the issuer during the tenor of the Proposal*;(d) The requirements of the Controller of Foreign Exchange with respect to the
Proposal*; and(e) Other requirements under the Securities Commission Act 1993 as may be
applicable.
4. Save as otherwise disclosed in the attachment accompanying this declaration,
the Company2 has not(a) been convicted or charged with any offence under the securities laws,
corporations laws or other laws involving fraud or dishonesty in a court of law,for the last 10 years prior to the submission; and114

(b) been subject to any action by the stock exchange for any breach of the listing
requirements or rules issued by the stock exchange, for the past five years prior
to the submission.
5. We declare the following:(a) the Proposal involves/does not involve any acquisition of substantial foreign
assets, in accordance with Chapter 11 of the Policies and Guidelines on
Issue/Offer of Securities3;(b) the Proposal results/does not result in a significant change in the businessdirection of the listed company, in accordance with Chapter 12 of the Policies
and Guidelines on Issue/Offer of Securities4;(c) the Issuer is/is not a distressed listed company, in accordance with Chapter 13 of
the Policies and Guidelines on Issue/Offer of Securities5;(d) the Proposal is/is not a related-party transaction in accordance with Chapter 10of the Policies and Guidelines on Issue/Offer of Securities6;
6. We declare that we will ensure continuous compliance with the requirements andconditions imposed by the SC in relation to the above Proposal.
7. We undertake to provide to the SC all such information as the SC may require in
relation to the Proposal.
The above Declaration has been signed by me as …(designation of director)… of theIssuer pursuant to authority granted to me by a resolution of the Board of Directorson …(date of resolution)…
Yours faithfully,……………………….
Signature
Name:
Name of Issuer:
Date:
Notes
1 Applicable only in relation to Proposals falling under the Policies and Guidelines on
Issue/Offer of Securities. Where an application is being made to the SC for
proposals under the assessment approach and exemptions are being sought, toinsert the words “except paragraph(s) ..(refer to paragraph where exemption is
being sought).. where exemption(s) is/are being sought as part of the submission to
the SC.”
2 Applicable only to proposals in relation to public companies.
3 Applicable only to the issue, offer or listing of equity or equitylinked securities by
public companies.

115

4, 5, 6Applicable only to proposals in relation to listed companies.

* To delete if not applicable116Appendix 2 (b)Declaration by the Principal Adviser
Date: (Date of Application)
The Chairman
Securities Commission
Dear Sir
ISSUER (Name of Issuer)
Declaration Pursuant to:• Paragraph 4.01 of the Guidelines on the Offering of Private Debt
Securities; and• Paragraph 16.02 of the Policies and Guidelines on Issue/Offer ofSecurities *(Name of Issuer)…. is proposing to undertake the following proposals:(a) ……….
(b) ……….
(c) ……….
(hereinafter referred to as “the Proposal”).
We,..(Name of Principal Adviser)…, are advising ..(Name of Issuer).. on the Proposal.
2. We confirm that after having made all reasonable enquiries, and to the best of ourknowledge and belief, there is no false or misleading statement contained in, ormaterial omission from, the information that is provided to the SC in relation to theabove Proposal.
3. We declare that we are satisfied after having made all reasonable enquiries that
the Proposal is in full compliance with the following:(a) The Policies and Guidelines on Issue/Offer of Securities1;(b) The Guidelines on the Offering of Private Debt ;(c) The Guidelines on the Offering of Asset-Backed Securities *;(d) The requirements of the Controller of Foreign Exchange with respect to the
Proposal*; and(e) Other requirements under the Securities Commission Act 1993 as may be
applicable.
4. We declare the following:-

117

(a) the Proposal involves/does not involve any acquisition of substantial foreign
assets, in accordance with Chapter 11 of the Policies and Guidelines on
Issue/Offer of Securities2;(b) the Proposal results/does not result in a significant change in the businessdirection of the listed company, in accordance with Chapter 12 of the Policies
and Guidelines on Issue/Offer of Securities3;(c) the Issuer is/is not a distressed listed company, in accordance with
Chapter 13 of the Policies and Guidelines on Issue/Offer of Securities4;(d) the Proposal is/is not a related-party transaction in accordance with Chapter 10of the Policies and Guidelines on Issue/Offer of Securities5;
5. We undertake to immediately inform the SC if it has come to our knowledge that
the Issuer has breached or failed to comply with such requirements, after
submission of this declaration relating to the Proposal until the implementation of
the Proposal.
6. We undertake to provide to the SC all such information as the SC may require in
relation to the Proposal.
Yours faithfully………………………
Signature
Name:
Name of Principal Adviser:
Date:* To delete if not applicableNotes
1 Applicable only in relation to Proposals falling under the Policies and Guidelines on
Issue/Offer of Securities. Where an application is being made to the SC for
proposals under the assessment approach and exemptions are being sought, toinsert the words “except paragraph(s) .(refer to paragraph where exemption is
being sought).. where exemption(s) is/are being sought as part of the submission to
the SC.”
2 Applicable only to the issue, offer or listing of equity or equitylinked securities by
public companies.
3, 4, 5

Applicable only to proposals in relation to listed companies.

* To delete if not applicable118

GUIDELINES ON THE OFFERING OF ISLAMIC SECURITIES
26 July 2004

CONTENTS
PAGE
1.0

INTRODUCTION

2.0

SUBMISSION OF PROPOSALS UNDER THESE GUIDELINES

3.0

OFFERINGS OF ISLAMIC SECURITIES UNDER A SHELF REGISTRATIONSCHEME

4.0

DOCUMENTS/INFORMATION REQUIRED

5.0

ELIGIBLE PERSONS

6.0

APPOINTMENTOFSYARIAH

ADVISEROTHER

REGULATORYFORISLAMICSECURITIESAPPROVALS
7.0

RATING REQUIREMENT

8.0

UNDERWRITING

9.0

MODE OF ISSUE

10.0

UTILISATION OF PROCEEDS

11.0

ADDITIONALREQUIREMENTS

PROGRAMMES
12.0

DISCLOSURE REQUIREMENTS TO INVESTORS RELATING TO ISLAMIC

13.0

SECURITIES INVOLVING PROFIT SHARING (MUDHARABAH)/PROFITAND LOSS SHARING (MUSYARAKAH) ELEMENT

14.0

TIME FRAME FOR APPROVALS FROM THE SC

Appendix 1 Approved Syariah Principles and Concepts for the Purpose of Structuring,Documenting and Trading of Islamic securities
Appendix 2 Information to be Submitted for the Purpose of Obtaining the SC’s
Approval Information to be Submitted after Obtaining Approval from the SC
Principal Terms and Conditions of the Proposal
Appendix 3 (a) Declaration by the Issuer
Appendix 3 (b) Declaration by the Principal Adviser
1.0

INTRODUCTION

1.01

Any person who issues, offers for subscription or purchase, or makes aninvitation to subscribe for or purchase (“issue, offer or invitation”), Islamic
securities would require the approval of the SC under section 32 of the
Securities Commission Act 1993 (SCA).

119

1.02

For the purposes of these Guidelines, the SC’s approval would not be required if
the transaction is exempted under Schedule 1 of the SCA.

1.03

These Guidelines stipulate the criteria which must be met with regard to any
issue, offer or invitation of Islamic securities which comes under the ambit of the
SCA.

1.04

Any person who seeks the approval of the SC under these Guidelines should also
ensure that such person complies with the registration and disclosure
requirements in respect of prospectuses and trust deeds as may be applicable
under the SCA.

1.05

For the purpose of these Guidelines:(a) The term “Islamic securities” means any securities issued pursuant to any
Syariah principles and concepts approved by the Syariah Advisory Council(SAC) of the SC as set out in Appendix 1.
(b) The terms “adviser” and “principal adviser” have the meanings assigned to it
under the SC’s “ Policies and Guidelines on Issue/Offer of Securities” (“Issues
Guidelines”).
(c) All issues, offers or invitation of Islamic securities, including those involving theissuance of sukuk and those made under principles of Musyarakah andMudharabah, must comply with Division 4 Part IV of the SCA.
(d) In the event an Islamic securities arrangement falls within the definition of“unit trust scheme” or “prescribed investment scheme” under the SCA, such
Islamic securities shall not be subject to Division 5 Part IV of the SCA.
(e) For this purpose, the term “debenture” and “borrower” in Division 4 of Part IV of
the SCA shall refer to “Islamic securities” and “issuer of Islamic securities”
respectively.
1.06

Where any Syariah principle or concept applied in the structuring of an issue,
offer or invitation is based on a principle or concept other than which is stated inAppendix 1, the approval of the SAC must be obtained prior to any submission ofdeclarations and information to the SC under paragraph 4.01.

1.07

A public company should also ensure that the requirements in all otherguidelines issued by the SC, where applicable, are complied with in respect of all
corporate transactions undertaken by it.

1.08

For Islamic securities issued pursuant to an asset-backed securitizationtransaction, the Guidelines on the Offering of Asset-Backed Securities will also
apply.

2.0

SUBMISSION OF PROPOSALS UNDER THESE GUIDELINES

2.01

Below are categories of persons that may act as principal adviser for thefollowing types of proposals:

120

(a) Merchant banks, commercial banks, universal brokers or discount houses(i)

All proposals for the issuance of Islamic securities that are not capable ofbeing converted into equity howsoever(b) Merchant banks or universal brokers(i)All proposals for the issuance of Islamic securities that are capable of being
converted into equity(ii) All proposals for the issuance of Islamic securities together with warrants(iii) All proposals for the issuance of Islamic securities which are part of acomposite scheme
3.0

OFFERINGS OF ISLAMIC SECURITIES UNDER A SHELF REGISTRATIONSCHEME

3.01

Notwithstanding paragraph 1.01, any issue, offer or invitation of Islamic
securities under a shelf registration scheme can only be made in respect ofIslamic securities which falls within the definition of “debenture” under the SCA,
are not capable of being converted into equity howsoever and which have nowarrants attached.

3.02

A person making an issue, offer or an invitation for Islamic securities under ashelf registration scheme must comply with these Guidelines as well as the
Securities Commission (Shelf Registration Scheme for Debentures) Regulations
2000 and any guidelines in relation thereto.

4.0

DOCUMENTS/INFORMATION REQUIRED

4.01

In relation to any issue, offer or invitation made pursuant to these Guidelines,
the issuer and principal adviser must submit to the SC such documents andinformation as set out in Appendix 2 as well as declarations as set out inAppendix 3.

4.02

Additionally, where the Issues Guidelines would apply to an issue, offer or
invitation of Islamic securities by a public company, the issuer and principal
adviser shall submit such additional information and documents as may berequired under the Issues Guidelines.

4.03

The SC may also require additional information from the issuer and its principal
adviser, including due-diligence reports and rating reports if applicable, forpostvetting purposes at any time.

121

5.0

ELIGIBLE PERSONS

5.01

Any person who is a corporation within the meaning of sub-section 2(1) of the
SCA is eligible under these Guidelines.

5.02“Corporation” referred to in paragraph 5.01 means any body corporate formed orincorporated or existing within Malaysia or outside Malaysia and includes any
foreign company but does not include-(a) Any corporate that is incorporated within Malaysia and is by notice of the
Minister published in the Gazette declared to be a public authority or an
instrumentality or agency of the public Government of Malaysia or of any Stateor to be a body corporate which is not incorporated for commercial purposes;(b) Any corporate sole;(c) Any society registered under any written law relating to co-operative societies;or(d) Any trade union registered under any written law as a trade union.
6.0

APPOINTMENT OF SYARIAH ADVISER

6.01 In relation to Islamic Securities that comes within the ambit of these Guidelines,
the issuer must appoint either:(a) An independent Syariah adviser who has been approved by the SC and whomeets the following criteria:(i)

is not an undischarged bankrupt;(ii) has not been convicted for any offence arising out of a criminal proceeding;(iii) is of good repute and character;(iv) possesses the necessary qualifications and expertise particularly in fiqh
muamalah and Islamic jurisprudence, and has a minimum of 3 years
experience or exposure in Islamic finance; or(b) An Islamic bank or a licensed institution approved by Bank Negara Malaysia tocarry out Islamic Banking Scheme or Skim Perbankan Islam, to advise on all
aspects of the Islamic securities including documentation, structuring,
investment as well as other administrative and operational matters in relation
to the Islamic securities, and ensure compliance with applicable Syariah
principles and relevant resolutions and rulings made by the SAC from time totime. In the event of doubt, clarification should be sought from the SAC.
6.02

Where the applicant for independent Syariah adviser under paragraph 6.01
above is a corporation, such corporation must engage at least one Syariah expert
who meets the criteria stipulated in paragraph 6.01(a). In addition, the Syariah
expert and the corporation concerned should not have breached any securities or122

banking laws since the date of incorporation nor have a winding up order orresolution passed against the corporation.
6.03

Submission to the SC to be approved as an independent Syariah adviser should
be addressed to:

Head
Islamic Capital Market Department
Securities Commission
No.3 Persiaran Bukit Kiara
50490 Bukit Kiara, Kuala Lumpur
7.0

OTHER REGULATORY APPROVALS

7.01

All necessary approvals in relation to the issue, offer or invitation from otherregulatory bodies, including the Controller of Foreign Exchange, must be
obtained prior to the submission of any written declarations and information to
the SC under these Guidelines. Any conditions imposed by such regulatory
bodies, if applicable, must continue to be complied with throughout the tenor of
the Islamic securities approved under these Guidelines.

8.0

RATING REQUIREMENT

8.01

All issues, offers or invitations that come within the scope of these Guidelines
must be rated by a rating agency recognised by the SC. An indicative ratingmust have been obtained by the issuer at the time of submission of thedeclarations and information to the SC pursuant to paragraph 4.01.

8.02

Notwithstanding paragraph 8.01, a rating is not required for any issue, offer or
invitation of Islamic securities:(a) which are non-transferable and non-tradable; and(b) whose investors do not require a rating.
The principal adviser must confirm in writing to the SC that both criteria
highlighted above have been met.
8.03

Where the credit rating of any issue, offer or invitation is below investment
grade, the issuer must disclose the extent of credit risk to investors and theiradvisers in order to evaluate the risks relating to the Islamic securities.

9.0

UNDERWRITING

9.01

The underwriting of any issue, offer or invitation shall be decided by the issuer
and its principal adviser.

123

9.02

In the event that the issuer and its principal adviser should decide that nounderwriting or only partial underwriting is required, the issuer must state theminimum level of subscription necessary to achieve the funding objectives of theissuer.

9.03

Paragraph 9.02 does not apply where:(a) the utilisation of proceeds is solely for working capital purposes; and(b) the issuer has in place alternative funding arrangements.
9.04

Unless otherwise allowed in writing by the SC, where any issue, offer or
invitation is under-subscribed and cannot meet the minimum level ofsubscription as required under paragraph 9.02, the issue, offer or invitationmust be aborted and any consideration received for the purposes of subscription,
where applicable, must be immediately returned to all subscribers.

10.0

MODE OF ISSUE

10.01 All issues of Islamic securities under these Guidelines must be reported and/or
tendered on the Fully Automated System for Issuing/Tendering (“FAST”) unlessa listing is sought on any Malaysian stock exchange. The issuer and principal
adviser must ensure that the issue complies with all rules and requirements of
FAST.
10.02 Save for paragraph 12.01, all issues of Islamic securities that are subject tothese Guidelines must be made under the Real Time Electronic Transfer ofFunds and Securities (“RENTAS”) system unless a listing is sought on any
Malaysian stock exchange. The issuer and principal adviser must ensure thatthe issue complies with all rules and requirements of the RENTAS system.
11.0

UTILISATION OF PROCEEDS

11.01 Any funds raised from any issue, offer or invitation in Malaysia must not bechannelled to finance such activities as may be announced by the National Bond
Market Committee from time to time.
11.02 Funds raised in Malaysia by any person, including funds raised by any
nonresident and non-resident controlled company, as defined under ECM
Notices 1 and 8 respectively, shall comply with any requirements andregulations as may be issued by the Controller of Foreign Exchange from time to
time.

124

12.0

ADDITIONAL REQUIREMENTS FOR ISLAMIC SECURITIES PROGRAMMES

12.01 Where an Islamic securities programme involves an issuance of commercial
papers or a combination of medium term notes and commercial papers:(a) the tenor for such programmes must not exceed 7 years; and(b) the issuance of Islamic securities under the programme is not required to bemade under the RENTAS system.
12.02 In all other Islamic securities programmes, (for example, stand-alone Islamic
MTN programmes) the 7-year tenor restriction will not apply. However, issuersmust state upfront the size and tenor of the programme at the point ofsubmission to the SC.
12.03 In all Islamic securities programmes falling within paragraphs 12.01 and 12.02,
issuers are also required to disclose to prospective investors the following
information prior to each drawdown:(a) Size of issue(b) Utilisation of proceeds(c) Minimum level of subscription (where applicable)(d) Tenor(e) Revisions of the rating, if any, since the date of the last draw down
(f)
13.0

The identified underlying assets and value
DISCLOSURE REQUIREMENTS TO INVESTORS RELATING TO ISLAMICSECURITIESISSUED

UNDER

PRINCIPLESOFPROFITSHARING(MUDHARABAH)/PROFIT AND LOSS SHARING (MUSYARAKAH)
13.1

Where a prospectus is not required, an information memorandum must be madeavailable to investors for any issue, offer or invitation of Islamic securities
issued under principles of profit sharing ( Mudharabah) or profit and loss
sharing ( Musyarakah).

14.0

TIME FRAME FOR APPROVAL FROM THE SC

14.01 The SC would give its approval within 14 working days from the date of receipt
of all declarations, complete information and documentation as required underthese Guidelines in the following cases:(a) Any issue, offer or invitation in respect of Islamic securities that is not capableof being converted into equity howsoever;(b) Any issue, offer or invitation in respect of Islamic securities, together withwarrants, that are not capable of being converted into equity howsoever; and(c) Any issue, offer or invitation of Islamic securities by a private company.

125

14.02 In circumstances where the Issues Guidelines would apply to the issue, offer or
invitation of Islamic securities, the time frame for approval by the SC set out
under those Guidelines would apply.
14.03 Except in the case of a shelf registration scheme or an Islamic securities
programme, any approval given by the SC under these Guidelines must be
implemented within 6 months from the date of the SC’s approval.
14.04 In the case of a shelf registration scheme or an Islamic securities programme,
the initial draw-down must be made within 2 years from the date of the SC’s
approval.

126

A-1
APPENDIX 1• Approved Syariah Concepts and Principles for the Purpose of Structuring,• Documenting and Trading of Islamic Securities
The following are acceptable Syariah concepts and principles for Islamic securities A. Primary principles• Deferred-Payment Sale [ Bai’ Bithaman Ajil (BBA)]
A contract that refers to the sale and purchase transaction for the financing of anasset on a deferred and an instalment basis with a pre-agreed payment period. The
sale price will include a profit margin.
• Sale with Immediate Repurchase [ Bai’ ‘Inah]
A contract which involves the sale and buy back transaction of an asset by a seller. A
seller will sell the asset to a buyer on a cash basis. The seller will immediately buy
back the same asset on a deferred payment basis at a price that is higher than the cash
price. It can also be applied when a seller sells the asset to a buyer on a deferred basis.
The seller will later buy back the same asset on a cash basis at a price which is lower
than the deferred price.
• Supply Sale [ Bai’ Istijrar]
A contract between a client and a supplier, whereby the supplier agrees to supply aparticular product on an ongoing basis, for example monthly, at an agreed price and on
the basis of an agreed mode of payment.
• Advance Purchase [ Bai’ Salam]
A sale and purchase contract whereby the payment is made in cash at the point ofcontract but the delivery of the asset purchased will be deferred to a pre-determined
date.
• Sale and Repurchase [ Bai’ Wafa’]A contract with the condition that when the seller pays back the price of goods sold,the buyer returns the goods to the seller.

127• Leasing [ Ijarah]
A manfaah (usufruct) type of contract whereby a lessor (owner) leases out an asset oran equipment to its client at an agreed rental fee and pre-determined lease period
upon the ‘aqad (contract). The ownership of the leased equipment remains in the handsof the lessor.
• Lease to Purchase [ Ijarah Thumma Bai`]
A contract which begins with an Ijarah contract for the purpose of renting out alessor’s asset to a lessee. Consequently, at the end of the lease period, the lessee willpurchase the asset at an agreed price from the lessor by executing a purchase ( Bai`)
contract.
• Purchase Order [ Istisna’]
A purchase contract of an asset whereby a buyer will place an order to purchase theasset which will be delivered in the future. In other words, the buyer will require aseller or a contractor to deliver or construct the asset that will be completed in the
future according to the specifications given in the sale and purchase contract. Bothparties of the contract will decide on the sale and purchase prices as they wish and thesettlement can be delayed or arranged based on the schedule of the work completed.
• Profit-Sharing [ Mudharabah]
A contract which is made between two parties to finance a business venture. The
parties are a rabb al-mal or an investor who solely provides the capital and a mudharib
or an entrepreneur who solely manages the project. If the venture is profitable, theprofit will be distributed based on a pre-agreed ratio. In the event of a business loss,
the loss shall be borne solely by the provider of the capital.
• Cost-Plus Sale [ Murabahah]
A contract that refers to the sale and purchase transaction for the financing of anasset whereby the cost and profit margin (mark-up) are made known and agreed by allparties involved. The settlement for the purchase can be either on a deferred lump sum
basis or on an instalment basis, which will be specified in the agreement.
• Profit and Loss-Sharing [ Musyarakah]
A partnership arrangement between two parties or more to finance a businessventure whereby all parties contribute capital either in the form of cash or in kind forthe purpose of financing the business venture. Any profit derived from the venture will
be distributed based on a pre-agreed profit sharing ratio, but a loss will be shared on
the basis of equity participation.

128

• Benevolent Loan [ Qardh Hasan]
A contract of loan between two parties on the basis of social welfare or to fulfill ashort-term financial need of the borrower. The amount of repayment must be
equivalent to the amount borrowed. It is however legitimate for a borrower to pay morethan the amount borrowed as long as it is not stated or agreed at the point of contract.
B. Supplementary concepts and principles• Debt Trading [ Bai’ Dayn]
A transaction that involves the sale and purchase of securities or debt certificatesthat conforms with Syariah. Securities or debt certificates will be issued by a debtor toa creditor as an evidence of indebtedness.
• Open-Bidding Trading [ Bai’ Muzayadah]
An action by a person to sell his asset in the open market through a bidding process
among potential buyers. The asset for sale will be awarded to the person who hasoffered the highest bid/price. This is also known as the sale and purchase transaction
based on tender.
• Guarantee [ Kafalah]
A contract of guarantee whereby a guarantor underwrites any claim and obligationthat should be fulfilled by an owner of the asset. This concept is also applicable to aguarantee provided on a debt transaction in the event a debtor fails to fulfill his debt
obligation. The same definition can be applied for Dhaman.
• Ownership Right [ Hak Tamalluk]
An asset in the form of ownership rights as classified by Syariah which are tradable.
• Gift [ Hibah]
A gift awarded to a person on voluntary basis.
• Remittance [ Hiwalah]
A contract that allows a debtor to transfer his debt obligation to a third party.
• Rebate [ Ibra’]An act by a person to withdraw his rights to collect payment from a person who has
the obligation to repay the amount borrowed from him.

129• Pre-Agreed Contract [ Ittifaq Dhimni]
A sale and re-purchase of the underlying asset of which the prices are agreed by theparties prior to the completion of the contract. This is an external agreement whichmust be reached before the contract can be concluded to allow for the bidding process( Bai’ al-Muzayadah) to take place.
• Collateral [ Rahn]
An act whereby a valuable asset is made as a collateral for a debt. The collateral will
be utilised to settle the debt when a debtor is in default.
• Securities [ Sukuk]
A document or certificate which represents the value of an asset.
• Fee [ Ujrah]
A financial charge for the utilisation of services or manfaat. In the context of today’s
economy, it can be in the form of salary, wage, allowance, commission and alike.
• Agency [ Wakalah]
A contract which gives the power to a person to nominate another person to act on
his behalf as long as he is alive based on the agreed terms and conditions.

130

APPENDIX 2
1.0

Information to be Submitted for the Purpose of Obtaining the Approval of theSC.

1.01 Application letter disclosing the following items:(a) Background information on the Issuer and/or Originator in the case of an
Asset-Backed Securities (ABS) issue;(b) Profile of Directors of Issuer;(c) A description of the transaction and structure of the issue;(d) Details of the utilisation of proceeds. If proceeds are to be utilised for project,details of the project;(e) A schedule of utilisation of the issue proceeds;(f)

Details of expenses for the issue;(g) Waiver(s) from complying with the Guidelines on the Offering of Islamic
Securities and/or specific approval pursuant to the Securities Commission Act
1993 sought and obtained from the SC for the issue (where applicable);(h) Specific approval sought and obtained from the SC in relation to theappointment of an independent Syariah Adviser and/or applicable Syariah
principle or concept;(i)

Conflict of interest situations and appropriate mitigating measures;(j)

For issuances made for the purpose of refinancing an existing financing facility(which involves the issuance of securities), information on the existing financing
facility;(k) Any other material information in relation to the issue; and(l)Names, telephone numbers and facsimile number of the officers-in charge of the
Principal Adviser for the issue.

1.02 Principal Terms and Conditions of the Proposal
1.03 Principal Terms and Conditions of Warrants, in the case of an Islamic Securities
issue with warrants
1.04 Issuer’s and Principal Adviser’s Declaration (Appendix 3)
1.05 Principal Adviser’s confirmation on compliance with all requirements of theController of Foreign Exchange in accordance with the Exchange Control
Guidelines
1.06 Latest audited accounts of the Issuer
1.07 Compliance checklist on the Guidelines on the Offering of Islamic Securities
1.08 In the case where the Issuer is a public company and the SC’s Issues Guidelines
applies to such Issuers – Declarations in accordance with Chapter 4 of the Issues
Guidelines
1.09 In the case of Islamic securities with warrants issue:

131

(a) Terms and conditions of the warrants;(b) Financial effects of the warrants issue;(c) Rationale for the attachment of warrants; and(d) Compliance checklist on the SC’s Issues Guidelines with respect to the warrants
issue.
2.0

Information to be Submitted After Obtaining the Approval of the SC

2.01 In the case of Islamic securities programmes, Issuer’s notification to the SC of thefollowing information following each draw-down:(a) Size of issue;(b) Mode of issue;(c) Utilisation of proceeds;(d) Minimum level of subscription (where applicable);(e) Tenor;(f)Actual yield or price;(g) Revisions of the rating, if any, since the date of the last draw-down; and(h) The identified underlying asset and value.
3.0

Principal Terms and Conditions of the Proposal

3.01 Background Information(a) Issuer
(i)

Name

(ii)

Address(iii)

Business registration no.

(iv)

Date/place of incorporation(v)

Date of listing (in case of a public listed company)(vi)

Status:resident/non-resident

controlled

company:

Bumiputera/non-Bumiputera controlled company*(vii)

Principal activities(viii) Board of directors(ix)

Structure of shareholdings and names of shareholders or, in the case of apublic company, names of all substantial shareholders(x)Authorised and paid-up capital.

(b) Originator (in the case of asset-backed securities)
(i)

Name

(ii)

Address(iii)

Business registration no.

(iv)

Date/place of incorporation

132

(v)

Date of listing (in case of a public listed company)(vi)

Status: resident/non-resident controlled company:
Bumiputera/non-Bumiputera controlled company*(vii)

Principal activities(viii) Board of directors(ix)

Structure of shareholdings and names of shareholders or, in the case of apublic company, names of all substantial shareholders(x)Authorised and paid-up capital.

3.02 Principal Terms and Conditions(a) Names of parties involved in the proposed transaction (where applicable)(i)Principal adviser(s)/Lead arranger(s)(ii)

Arranger(s)(iii)

Valuers(iv)

Solicitors(v)

Financial adviser(vi)Technical adviser(vii)

Guarantor(viii) Trustee(ix)

Facility Agent(x)

Primary Subscriber(s) and amount subscribed (where applicable)(xi)

Underwriter(s) and amount underwritten(xii)

Syariah adviser(xiii) Central depository(xiv) Paying agent(xv)

Reporting accountant(xvi) Others (please specify)(b) Islamic principle used(c) Facility description(d) Issue size (RM)(e) Issue price(f)Tenor of the facility/issue(g) Coupon/profit or equivalent rate (%) (please specify)(h) Coupon/profit payment frequency and basis(i)

Yield to maturity (%)(j)

Security/collateral (if any)(k) Details on utilisation of proceeds(l)Sinking fund (if any) (m) Rating• Credit rating assigned [Please specify if this is an indicative rating]• Name of rating agency(n) Form and denomination133

(o) Mode of issue(p) Selling restriction(q) Listing status(r) Minimum level of subscription (RM or %)(s) Other regulatory approvals required in relation to the issue, offer or
invitation and whether or not obtained [please specify](t) Identified assets(u) Purchase and selling price/rental (where applicable)(v) Conditions precedent(w) Representations and warranties(x) Events of default(y) Principal terms and conditions for warrants (where applicable)(z) Other principal terms and conditions for the issue

134

Appendix 3 (a)Declaration by the Issuer
Date: (Date of Application)
The Chairman
Securities Commission
Dear Sir
ISSUER (Name of Issuer)
Declaration Pursuant to:• Paragraph 4.01 of the Guidelines on the Offering of Islamic Securities; and• Paragraph 16.02 of the Policies and Guidelines on Issue/Offer ofSecurities*
We, (Name of Issuer) are proposing to undertake the following proposals:(a) ………..
(b) ………..
(c) ………..
(hereinafter referred to as “the Proposal”).
2. We confirm that after having made all reasonable enquiries, and to the best of ourknowledge and belief, there is no false or misleading statement contained in, ormaterial omission from, the information that is provided to the adviser(s)/expert(s)or to the SC in relation to the above Proposal.
3. We declare that we are satisfied after having made all reasonable enquiries that
the Proposal is in full compliance with the following:(a) The Policies and Guidelines on Issue/Offer of Securities1;(b) The Guidelines on the Offering of Islamic Securities;(c) The Guidelines on the Offering of Asset-Backed Securities as may be applicableto the issuer during the tenor of the Proposal*;(d) The requirements of the Controller of Foreign Exchange with respect to the
Proposal*; and(e) Other requirements under the Securities Commission Act 1993 as may be
applicable.
4. Save as otherwise disclosed in the attachment accompanying this declaration, theCompany2 has not(a) been convicted or charged with any offence under the securities laws,
corporations laws or other laws involving fraud or dishonesty in a court of law,for the last 10 years prior to the submission; and135

(b) been subject to any action by the stock exchange for any breach of the listing
requirements or rules issued by the stock exchange, for the past 5 years prior to
the submission.
5. We declare the following:(a) The Proposal involves/does not involve any acquisition of substantial foreign
assets, in accordance with Chapter 11 of the Policies and Guidelines on
Issue/Offer of Securities3;(b) The Proposal results/does not result in a significant change in the businessdirection of the listed company, in accordance with Chapter 12 of the Policies
and Guidelines on Issue/Offer of Securities4;(c) The Issuer is/is not a distressed listed company, in accordance with Chapter 13of the Policies and Guidelines on Issue/Offer of Securities5;(d) The Proposal is/is not a related-party transaction in accordance with Chapter 10of the Policies and Guidelines on Issue/Offer of Securities6;
6. We declare that we will ensure continuous compliance with the requirements andconditions imposed by the SC in relation to the above Proposal.
7. We undertake to provide to the SC all such information as the SC may require in
relation to the Proposal.
* To delete if not applicable
The above Declaration has been signed by me as …(designation of director)… of theIssuer pursuant to authority granted to me by a resolution of the Board of Directors on…(date of resolution)…
Yours faithfully……………………….
Signature
Name:
Name of Issuer:
Date:
Notes
1 Applicable only in relation to Proposals falling under the Policies and Guidelines on
Issue/Offer of Securities. Where an application is being made to the SC for
proposals under the assessment approach and exemptions are being sought, toinsert the words “except paragraph(s). (refer to paragraph where exemption is
being sought).. where exemption(s) is/are being sought as part of the submission to
the SC.”
2 Applicable only to proposals in relation to public companies.
3 Applicable only to the issue, offer or listing of equity or equity-linked securities by
public companies.

136

4, 5, 6Applicable only to proposals in relation to listed companies.

* To delete if not applicable137Appendix 3 (b)Declaration by the Principal Adviser
Date: (Date of Application)
The Chairman
Securities Commission
Dear Sir
ISSUER (Name of Issuer)
Declaration Pursuant to:• Paragraph 4.01 of the Guidelines on the Offering of Islamic Securities; and• Paragraph 16.02 of the Policies and Guidelines on Issue/Offer of Securities *…(Name of Issuer)…. is proposing to undertake the following proposals:(a) ……….
(b) ……….
(c) ……….
(hereinafter referred to as “the Proposal”).
We,..(Name of Principal Adviser)…, are advising ..(Name of Issuer).. on the Proposal.
2. We confirm that after having made all reasonable enquiries, and to the best of ourknowledge and belief, there is no false or misleading statement contained in, ormaterial omission from, the information that is provided to the SC in relation to theabove Proposal.
3. We declare that we are satisfied after having made all reasonable enquiries that
the Proposal is in full compliance with the following:(a) The Policies and Guidelines on Issue/Offer of Securities1;(b) The Guidelines on the Offering of Islamic Securities;(c) The Guidelines on the Offering of Asset-Backed Debt Securities*;(d) The requirements of the Controller of Foreign Exchange with respect to the
Proposal*; and(e) Other requirements under the Securities Commission Act 1993 as may be
applicable.
4. We declare the following:(a) The Proposal involves/does not involve any acquisition of substantial foreign
assets, in accordance with Chapter 11 of the Policies and Guidelines on
Issue/Offer of Securities2;

138

(b) The Proposal results/does not result in a significant change in the businessdirection of the listed company, in accordance with Chapter 12 of the Policies
and Guidelines on Issue/Offer of Securities 3;(c) The Issuer is/is not a distressed listed company, in accordance with Chapter 13of the Policies and Guidelines on Issue/Offer of Securities4;(d) The Proposal is/is not a related-party transaction in accordance with Chapter 10of the Policies and Guidelines on Issue/Offer of Securities5;
5. We undertake to immediately inform the SC if it has come to our knowledge that
the Issuer has breached or failed to comply with such requirements, after
submission of this declaration relating to the Proposal until the implementation of
the Proposal.
6. We undertake to provide to the SC all such information as the SC may require in
relation to the Proposal.
Yours faithfully………………………
Signature
Name:
Name of Principal Adviser:
Date:* To delete if not applicableNotes
1 Applicable only in relation to Proposals falling under the Policies and Guidelines on
Issue/Offer of Securities. Where an application is being made to the SC for
proposals under the assessment approach and exemptions are being sought, toinsert the words “except paragraph(s)..(refer to paragraph where exemption is
being sought)..where exemption(s) is/are being sought as part of the submission to
the SC.”
2 Applicable only to the issue, offer or listing of equity or equity-linked securities by
public companies.
3, 4, 5

Applicable only to proposals in relation to listed companies.

* To delete if not applicable

139

140

Telecommunications
network

Telecommunications
network

Telecommunications
network

Telecommunications
network

Telecommunications
network
Telecommunications
network

Telecommunications
network

Telecommunications
network

Celcom (Malaysia)
BerhadSarawak Gateway
Sdn Berhad

Sacofa Sdn Berhad

Touch Matrix Sdn
Bhd

Tele-Flow Capital
Sdn Berhad
Tele-Flow Capital
Sdn Berhad

Cellular Structures
Sdn Berhad

Cellular Structures
Sdn Berhad

MTN

MTN

27-Jul-2006

27-Jul-2006

TOTAL

25-Jul-2014

29-Jul-2013

24-May-2013

26-May-2006

RM90 million SeniorNotes under the
MUNIF/IMTN Facility
RM184.0 million
Senior MUNIF/IMTN

CP/MTN

21-Dec-2012

18-Nov-2014

18-Nov-2014

13-Apr-2007

26-May-2014

22-Dec-2005

18-Nov-2005

18-Nov-2005

15-Oct-2004

28-Dec-2018

26-May-2006

Murabahah Islamic
Medium-Term Notes
Programme

9 Years Redeemable
Secured Serial Sukuk
Ijarah
9 Years Sukuk Istisna

Al-MurabahahCommercial Papers

30-Dec-2003

28-Dec-2018

21-Nov-2008

292
10,681

8 Amanah Short Deposits Berhad

184 Amanah Short Deposits Berhad

90 Amanah Short Deposits Berhad

460
10 Amanah Short Deposits Berhad

60 KAF Investment Bank Berhad[fka KAF Discounts Berhad]

160 CIMB Investment Bank Berhad(fka Commerce International
Merchant Bankers)

100
240 RHB Investment Bank Berhad

8,029
100 Citibank Berhad

4,000 CIMB Investment Bank Berhad(fka Commerce International
Merchant Bankers)

4,000 CIMB Investment Bank Berhad(fka Commerce International
Merchant Bankers)

1,100
29 AmInvestment Bank Berhad

FACILITY
FACILITY
LEAD ARRANGER
MATURITY
LIMIT
DATE(RM mil)
18-Jan-2008
700 Aseambankers Malaysia
Berhad700
15-Apr-2008
1,100 Citibank Berhad

MTN

MTN

BONDS

BONDS

CP

Redeemable
Unsecured Bonds

BONDS

Tekad Mercu Berhad Telecommunications
network

15-Apr-2002

30-Dec-2003

Al-Bai Bithaman Ajil
Bond Issuance Facility

18-Jan-2001

BONDS

Sapura Resources
BerhadTelekom Malaysia
BerhadBONDS

Al-MurabahahMedium-Term Notes

FIRST BOND
ISSUE DATE

21-Nov-2003

Telecommunications
network

Celcom (Malaysia)
BerhadCP/MTNISSUE NAME

LOANSTOCK

Telecommunications
network

Telekom Malaysia
BerhadINSTRUMENT
TYPE

Telecommunications
network
Telecommunications
network

INDUSTRYISSUER NAME

A. Telecommunications Industry

Appendix IV. Details of Infrastructure Bonds

AA ID /
MARC-1ID
AA ID /
MARC-1ID

AA3AAA ISAAA ISP1

AAA (S)AA1A2 (S)

13/03/200
2

13/03/200
2

AA3

08/12/200
5

AAA IS 14/11/200
5AAA IS 14/11/200
5P2AA ID / 16/05/200
MARC-1
6
ID
21/07/2006 AA ID / 21/07/200
MARC-1
6
ID

16/05/2006

08/12/2005

22/01/2007

22/01/2007

08/09/2005

01/08/2006 AAA (S) 11/12/200
3

18/07/2006

CURRENT CURRENT FIRST
FIRSTRATINGRATING RATING RATING
DATE
DATE
AAA
01/08/2006
AAA
15/11/200
0

141

BONDS

Syarikat Pengeluar Water works &Air Sungai Selangor supply
Sdn Bhd

BONDS

CP/MTNGas District Cooling Water works &(Putrajaya) Sdn
supplyBerhadWater works &supplyWater works &supplyPuncak Niaga (M)Sdn Berhad

Redmax Sdn Bhd

BONDS

BONDS

Water works &supplyPuncak Niaga (M)Sdn Berhad

BONDS

Water works &supplyPuncak Niaga (M)Sdn Berhad

BONDS

INSTRUM
ENT
TYPE

BONDS

INDUSTRY

SAJ Holdings Sdn Water works &BerhadsupplySyarikat Pengeluar Water works &Air Sungai Selangor supply
Sdn Bhd

ISSUER NAME

19-Jul-2016

01-Dec-2000

19-Jul-2006

27-Oct-2000 27-Oct-2016

19-Jul-2000

28-Mar-2000 29-Mar-2010

FIRST
FACILITY
BOND
MATURITYISSUE DATEDATE

02-Apr-2003 11-Oct-2007

Al-Bai Bithaman Ajil Fixed 24-Mar-2004 24-Mar-2008
Rate Secured Bonds

5 Years MurabahahCommercial Paper/
Murabahah Medium-Term

5 - 20 Years Al-Bai
04-Dec-2002 02-Dec-2022
Bithaman Ajil Islamic Debt
Securities

Junior Notes A ("A Notes") 20-Nov-2001 18-Nov-2016

Floating Rate Notes

10 Years Al-Bai Bithaman
Ajil Serial Bonds

Al-Bai¿ Bithaman Ajil
Serial Bonds
Al-Bai' Bithaman Ajil
Islamic Debt Securities

ISSUE NAME
LEAD ARRANGER

680 Amanah Short
Deposits Berhad
1,407 CIMB Investment
Bank Berhad (fkaCommerce
International
Merchant Bankers)
1,020 United Overseas
Bank (Malaysia)
Berhad435 CIMB Investment
Bank Berhad (fkaCommerce
International
Merchant Bankers)
3,542
547 CIMB Investment
Bank Berhad (fkaCommerce
International
Merchant Bankers)
547
300 CIMB Investment
Bank Berhad (fkaCommerce
International
Merchant Bankers)
300
350 United Overseas
Bank (Malaysia)
Berhad350
100 KAF Investment
Bank Berhad [fkaKAF Discounts
Berhad]FACILITY
LIMIT (RM
mil)

B. Water Industry

Reaffirm

A1

InitialAA ID /
Reaffirm
MARC-1 ID

AAA ID

Up

Up

AA3

A+

Reaffirm

Reaffirm

Reaffirm

06/02/2004

18/12/2006

09/02/2007

18/12/2006

19/10/2005

18/12/2006

28/07/2006

30/04/2004

CURRENT_ CURRENTRATING_AC
RATING
TION
DATE

AA ID

AA3

A ID

CURRENTRATINGA1

AA ID /
MARC-1 ID

AAA IDA

AA3 (S)AA ID

AA3 (S)

A ID

FIRST
RATING

142

BONDS

Viable Chip (M)Water works &Sdn Berhad
supplyViable Chip (M)Water works &Sdn Berhad
supplySyarikat Pengeluar Water works &Air Sungai Selangor supply
Sdn Bhd
Puncak Niaga (M) Water works &Sdn Berhad
supplyBONDS

CP/MTN

BONDS

BONDS

Water works &supplyTitisan Modal (M)Sdn Berhad

BONDS

MTN

Water works &supplyWater works &supplySweetwater SPV
Sdn Berhad

Syarikat Bekalan
Air Selangor Sdn
Berhad30-Sep-2005 30-Sep-2025

30-Sep-2004 30-Sep-2014

28-Apr-2006 28-Apr-2021

TOTAL

Bai' Bithaman Ajil Islamic 30-Aug-2006 29-Aug-2014
Debt Securities
Bank Guaranteed Bai'
30-Aug-2006 30-Aug-2012
Bithaman Ajil Islamic Debt
Murabahah Commercial
29-Nov-2006 27-Nov-2026
Papers & Medium Term
Notes Programme
RM435 Million Nominal
19-Dec-2006 19-Dec-2016
Value Redeemable
Unsedured Bonds

6 - 15 years Fixed Rate
Serial Bonds

RM195 million Bai
25-Oct-2005 24-Oct-2014
Bithaman Ajil Islamic Debt

Bai Bithaman Ajil
Commercial
Paper/Medium Terms
Note Progr

6 - 15 Years Bai Bithaman 25-Oct-2004 25-Oct-2019
Ajil Debt Securities

BONDS

BONDS

27-Sep-2004 27-Mar-2006

7 Years MurabahahCommercial Paper/
Serial Bonds

02-Sep-2004 30-Aug-2012

FACILITY
FIRST
MATURITYBONDDATEISSUE DATE

CP/MTNISSUE NAME

Gas District Cooling Water works &(KLIA) Sdn Berhad supply
Jauhari Harapan
Water works &Sdn Bhd
supplySAJ Holdings Sdn Water works &BerhadsupplyINSTRUM
ENT
TYPE
Medium-Term Notes

INDUSTRY

Syarikat Mengurus INFRASTRUCT MTNAir Banjir &URES AND
Terowong Sdn Bhd UTILITIESISSUER NAME

LEAD ARRANGER

Reaffirm

18/12/2006

24/11/2006

28/08/2006

28/08/2006

07/09/2006

A+

AA ID /
MARC-1 ID

AAA ID (BG)

A+ ID

A+

A+ ID

AA- ID /
MARC-1 ID

20/10/2006

25/01/2007

AA- ID

AA- ID /
MARC-1 ID
AA3

AAA (S)FIRST
RATING

27/02/2007

24/11/2006

15/10/2004

17/10/2006

CURRENT_ CURRENTRATINGRATING_AC
DATE
TION

AA ID /
Affirm
MARC-1 ID
AA3
Reaffirm

AAA (S)

CURRENTRATING

108 AmInvestment Bank
Berhad1,280 Aseambankers
AA- ID
Reaffirm
Malaysia Berhad
3,943
AA- ID /Affirm3,000 CIMB Investment
Bank Berhad (fkaMARC-1 ID
Commerce
International
Merchant Bankers)
195 Avenue Securities
A+ ID
AffirmSdn Berhad
3,195
738 Affin Investment
AA+ (S)
Rationalised
Bank Berhad (FKA
Affin Merchant Bank
Berhad)150 AmInvestment Bank
A+ ID
InitialBerhad50 AmInvestment Bank AAA ID (BG) Initial
BerhadInitial435 United Overseas
AA ID /
Bank (Malaysia)
MARC-1 ID
Berhad435 United Overseas
A+
InitialBank (Malaysia)
Berhad1,808
13,6852,055 CIMB Investment
Bank Berhad (fkaCommerce
International
Merchant Bankers)
400 RHB Bank Berhad

FACILITY
LIMIT (RM
mil)

B. Water Industry (cont'd)

143

CP/MTN
BONDS

BONDS

BONDS

Besraya (M) Sdn Bhd
Highways & interchanges
Sistem Penyuraian Trafik KL Barat Highways & interchanges
Sdn Berhad
Sistem Penyuraian Trafik KL Barat Highways & interchanges
Sdn Berhad
Sistem Lingkaran-Lebuhraya Kajang Highways & interchanges
Sdn Bhd
Kuching Port Authority
Airports & ports

MTD Prime Sdn Berhad

Civil engineering &contracting

BONDS

Highways & interchanges

Penang Bridge Sdn Bhd

BONDS

BONDS

BONDS
BONDS

Port Facilities
Highways & interchanges

Lekir Bulk Terminal Sdn Bhd
Lingkaran Trans Kota Sdn. Bhd.

BONDS

Airports & ports

LOANNOTES

Expressway Lingkaran Tengah Sdn Highways & interchanges
Bhd

K.L. International Airport Berhad

BONDS

BONDS
LOANSTOCK

Airports & ports
ROADS

K.L. International Airport BerhadKesas Sdn Bhd

Expressway Lingkaran Tengah Sdn Highways & interchanges
Bhd

INSTRUMENT
TYPE

INDUSTRYISSUER NAME

6 1/2 Years Al-Bai Bithaman Ajil Islamic
Debt Securities

20 Years Al-Bai Bithaman Ajil Islamic Debt
Securities
20 Years Al-Bai' Bithaman Ajil Islamic Debt
Securities
14 Years Al-Bai Bithaman Ajil Islamic Debt
Securities

Medium-Term Notes Programme
16 Years Serial Fixed Rate Bonds

Al-Bai' Bithaman Ajil Facility

Serial Bonds
Guaranteed Serial Bonds

ISSUE NAME

31-Jul-2001

27-Dec-2001

22-Aug-2001

06-Aug-2001

19-Mar-2001
31-Jul-2001

30-Aug-2000

07-Jul-2000
26-Jul-2000

31-Jan-1996

30-Jun-1995

30-Jun-1995

18-Jan-1995
31-Mar-1995

FIRST BOND
ISSUE DATE

31-Jul-2007

24-Dec-2015

20-Aug-2021

06-Aug-2021

29-Feb-2008
31-Jul-2017

30-Aug-2013

06-Jul-2012
26-Jan-2009

29-Jan-2016

30-Jun-2005

30-Jun-2005

19-Jan-2015
19-Aug-2022

FACILITY
MATURITY
DATE

C. Transport
LEAD ARRANGER

3,495

2,010 Deutsche Bank (Malaysia)
Berhad180 MIDF Amanah Investment Bank
Berhad (FKA Utama MerchantBank Berhad)
250 AmInvestment Bank Berhad

510 AmInvestment Bank Berhad

1,505
180 AmInvestment Bank Berhad
365 AmInvestment Bank Berhad

3,065
2,200 Bank Islam Malaysia Berhad
2,200
445 HSBC Bank Malaysia Berhad
275 Aseambankers Malaysia
Berhad785 CIMB Investment Bank Berhad(fka Commerce International
Merchant Bankers)

440 CIMB Investment Bank Berhad(fka Commerce International
Merchant Bankers)

1,600 Bank Negara Malaysia
625 Aseambankers Malaysia
Berhad400 CIMB Investment Bank Berhad(fka Commerce International
Merchant Bankers)

FACILITY LIMIT(RM mil)AA ID

AAA ID (S)

B- ID

A- ID

AA3 / P1
AA-

AA2

AA1
AA2

CURRENTRATING

05/01/2007

09/02/2007

20/09/2006

15/03/2005

27/10/2006
29/12/2006

03/01/2007

20/10/2006
29/08/2006

CURRENTRATINGDATE

AA- ID

AA+ ID (S)

A ID

A ID

AA3 / P1
A (BG)AA2

AA3 (S)A3FIRST
RATING

15/07/2001

15/12/2001

15/08/2001

15/07/2001

09/11/2000
15/07/2001

14/08/2000

16/06/2000
18/07/2000

FIRST
RATING
DATE

MARC

MARC

MARC

MARC

RAM
MARC

RAM

RAM
RAM

RATING
AGENCY144

Highways & interchanges

ROADS

ROADS

ROADS

ROADS

Shipyards & Ports

Selia Selenggara Selatan Sdn Bhd

Selia Selenggara Selatan Sdn Bhd

Selia Selenggara Selatan Sdn Bhd

Kesas Sdn Bhd

Penang Port Sdn Bhd

New Pantai Expressway Sdn Bhd

Lingkaran Trans Kota Sdn. Bhd.

Highways & interchanges

Highways & interchanges

New Pantai Expressway Sdn Bhd

CP/MTN

CP/MTN

BONDS

BONDS

BONDS

BONDS

BONDS

BONDS

BONDS

BONDS

BONDS

Airports & ports

Kelang Multi Terminal Sdn Berhad

BONDS

BONDS

BONDS

Expressway Lingkaran Tengah Sdn Highways & interchanges
Bhd
K.L. International Airport Berhad
Airports & ports

Highways & interchanges

Highways & interchanges

Highways & interchanges

Lingkaran Trans Kota Sdn. Bhd.

Projek Lebuhraya Utara-Selatan
BerhadROADS

Kesas Sdn Bhd

Lingkaran Trans Kota Sdn. Bhd.

BONDS

Highways & interchanges

BONDS

BONDS

Highways & interchanges

Projek Lebuhraya Utara-Selatan
BerhadGrand Saga Sdn Bhd

INSTRUMENT
TYPE

INDUSTRYISSUER NAME

Commercial Papers/Medium Term Notes

MUNIF/Islamic Medium-Term Notes
Facility

Junior Secured Serial Notes C

Junior Secured Serial Notes B

Senior Secured Serial Bonds

Redeemable Junior Bonds

Junior Bai Bithaman Ajil Islamic Debt
Securities
Senior Bai Bithaman Ajil Islamic Debt
Securities

Al-Bai' Bithaman Ajil Islamic Debt
Securities
Bai' Bithaman Ajil Notes Issuance Facility

7 Years Floating Rate Notes

Al-Bai' Bithaman Ajil Islamic Debt
Securities
Al-Bai' Bithaman Ajil Islamic Debt
Securities
Bai' Bithaman Ajil Islamic Debt Securities

Al-Bai' Bithaman Ajil Islamic Debt
Securities

Al-Bai' Bithaman Ajil Islamic Debt
Securities

Bai' Bithaman Ajil Islamic Debt Securities

ISSUE NAME

11-Oct-2004

08-Oct-2004

31-Mar-2004

31-Mar-2004

31-Mar-2004

15-Mar-2004

31-Oct-2003

27-Oct-2003

30-Jun-2003

28-Feb-2003

28-Feb-2003

20-Dec-2002

23-Oct-2002

23-Oct-2002

11-Oct-2002

20-Sep-2002

31-May-2002

FIRST BOND
ISSUE DATE

26-Sep-2005

11-Oct-2006

31-Mar-2014

31-Mar-2014

31-Mar-2014

15-Mar-2017

31-Oct-2013

27-Oct-2016

30-Jun-2015

27-Feb-2015

26-Feb-2010

20-Dec-2016

23-Oct-2014

23-Oct-2014

10-Oct-2014

20-Sep-2010

31-May-2017

FACILITY
MATURITY
DATE

C. Transport (cont'd)
LEAD ARRANGER

80 ABN Amro Bank Berhad

5,950
174 United Overseas Bank
(Malaysia) Berhad
170 Aseambankers Malaysia
Berhad22 Aseambankers Malaysia
Berhad124 Aseambankers Malaysia
Berhad100 MIMB Investment Bank Berhad(FKA Malaysian International
Merchant Bankers Berhad)

490 AmInvestment Bank Berhad

250 AmInvestment Bank Berhad

4,060 AmInvestment Bank Berhad

8,913
350 Southern Investment Bank
Berhad800 Amanah Short Deposits Berhad

395 United Overseas Bank
(Malaysia) Berhad
148 United Overseas Bank
(Malaysia) Berhad
2,260 RHB Investment Bank Berhad

800 MIMB Investment Bank Berhad(FKA Malaysian International
Merchant Bankers Berhad)

210 MIMB Investment Bank Berhad(FKA Malaysian International
Merchant Bankers Berhad)

5,100 RHB Investment Bank Berhad

FACILITY LIMIT(RM mil)

12/10/2004

18/10/2005

A2 / P1

24/01/2007

C3

24/01/2007

24/01/2007

29/08/2006

27/10/2006

27/10/2006

02/02/2007

27/04/2006

02/08/2006

10/10/2006

29/08/2006

29/08/2006

18/10/2006

02/08/2006

10/10/2006

CURRENTRATINGDATE

AA3 / P1

C1

AA3

AA3

AA3

A1 (S)AAA (S)

AA2

AA

AAA

AA3

AA2

AA3

AA3

AAA

CURRENTRATING

A2 / P1

AA3 / P1

C3

C1

AA3

A1

AA3

A1 (S)AAA (S)

AA3

A+

AAA

A1

AA3

AA3

AA3

AAA

FIRST
RATING

16/09/2000

25/09/2002

22/03/2004

22/03/2004

22/03/2004

27/02/2004

13/10/2003

13/10/2003

26/06/2003

15/01/2003

15/08/2002

09/12/2002

03/10/2002

03/10/2002

25/09/2002

17/09/2002

23/04/2002

FIRST
RATING
DATE

RAM

RAM

RAM

RAM

RAM

RAM

RAM

RAM

RAM

RAM

MARC

RAM

RAM

RAM

RAM

RAM

RAM

RATING
AGENCY145

CP/MTN
BONDS

BONDS

Highways & interchanges

Highways & interchanges

PORTS

Highways & interchanges
Highways & interchanges

Sistem Penyuraian Trafik KL Barat
Sdn Berhad

Projek Lintasan Kota Sdn Berhad

Lumut Maritime Terminal Sdn Bhd

Besraya (M) Sdn Bhd
Projek Lebuhraya Utara-Selatan
BerhadKonsortium Lebuhraya Butterworth- ROADS
Kulim (KLBK) Sdn
Konsortium Lapangan Terjaya Sdn Highways & interchanges
BerhadKonsortium Lebuhraya Utara-Timur Highways & interchanges(KL) Sdn Berhad

BONDS

CP/MTN

CP/MTN

BONDS

Highways & interchanges

Highways & interchanges

Roads and Interchanges

Shipyards & Ports

Highways & interchanges

Highways & interchanges

ROADS

Highways & interchanges

Senai Desaru Expressway Berhad

Sistem Penyuraian Trafik KL Barat
Sdn Berhad
SDE Land Sdn Bhd

Penang Port Sdn Bhd

Penang Bridge Sdn Bhd

Konsortium Lapangan Terjaya Sdn
BerhadZecon Toll Concessionaire Sdn
BerhadProjek Lebuhraya Utara-Selatan
BerhadMTN

BONDS

CP/MTN

BONDS

Highways & interchanges

Senai Desaru Expressway Berhad

BONDS

BONDS

MTN

BONDS

CP

CP

CP/MTN

Highways & interchanges

Lingkaran Trans Kota Sdn. Bhd.

INSTRUMENT
TYPE

INDUSTRYISSUER NAME

Sukuk Musyarakah Medium Term Notes
Programme

RM80 million MCP/MTN (¿collectively
known as Finance Facilit
RM60 million Bai-Bithaman Ajil Islamic
Debt Securities

Redeemable Zero Coupon Serial Sukuk
IstisnaIslamic Commercial Papers/Medium Term
Notes

Al-Bai Bithaman Ajil Islamic Facility(Restructured BaIDS)
CP/MTN

Bai' Bithaman Ajil Islamic Debt Securities

Secured Bai' Bithaman Ajil Islamic Debt
Securities
RM380 MILLION AL-BAI BITHAMAN AJIL
MEDIUM TERM NOTES (¿BBA M
Redeemable Secured Serial Bonds under
an Islamic Istisna Sukuk

CP/MTN
Sukuk Musyarakah Series 2

Bai' Bithaman Ajil Islamic Debt Securities

Murabahah Medium-Term Notes
Programme
7 Years Revolving Underwritten Facility Convertible into a Floating Rate Term Loan

ISSUE NAME

28-Jul-2020

09-Dec-2005

10-Oct-2006

14-Jul-2006

16-May-2006

31-Mar-2006

24-Feb-2006

17-Oct-2005

29-Dec-2005

16-Dec-2005

TOTAL

10-Oct-2031

14-Jul-2021

22-Jun-2012

29-Mar-2019

25-Feb-2013

19-Aug-2010

29-Dec-2020

16-Dec-2038

07-Jun-2024

18-Oct-2018

28-Jul-2005
18-Oct-2005

15-Jul-2022

05-Jan-2012
17-Jun-2019

02-Jun-2017

05-Feb-2007

23-Jul-2008

23-Oct-2009

FACILITY
MATURITY
DATE

15-Jul-2005

14-Feb-2005
17-Jun-2005

03-Dec-2004

03-Dec-2004

18-Oct-2004

15-Oct-2004

FIRST BOND
ISSUE DATE

C. Transport (cont'd)
LEAD ARRANGER

AA2

AA3 / P1

AAA / P1

AA- ID

AA3

A+ ID

A+ ID

AA3

AA3 / P1AAA

AA3 (S)

MARC-1AA3 / P1

CURRENTRATING

03/01/2007

16/02/2007

29/11/2006

29/12/2006

29/11/2006

22/06/2006

06/07/2006

14/07/2006

27/10/2006
10/10/2006

20/10/2006

29/12/2006

29/08/2006

CURRENTRATINGDATE

AA2

A2 / P1

AAA / P1

AA- ID

AA3

A+ ID

A+ ID

AA3

AA3 / P1AAA

AA3 (S)

MARC-2A1 / P1

FIRST
RATING

5,435
38,986

A+ ID / MARC-2 06/07/2006
A+ ID /
80 United Overseas BankID
MARC-2 ID(Malaysia) Berhad
60 Affin Investment Bank Berhad
A+ ID
22/06/2006
A+ ID(FKA Affin Merchant Bank
Berhad)4,500 CIMB Investment Bank Berhad
AAA
10/10/2006
AAA(fka Commerce International
Merchant Bankers)

1,460 Aseambankers Malaysia
Berhad965 Aseambankers Malaysia
Berhad510 United Overseas Bank
(Malaysia) Berhad
401 Standard Chartered Bank
Malaysia Berhad
7,253
100 Affin Investment Bank Berhad(FKA Affin Merchant Bank
Berhad)695 CIMB Investment Bank Berhad(fka Commerce International
Merchant Bankers)

247 Bank Muamalat Malaysia
Berhad380 United Overseas Bank
(Malaysia) Berhad
780 CIMB Investment Bank Berhad(fka Commerce International
Merchant Bankers)

1,170
100 AmInvestment Bank Berhad
2,410 CIMB Investment Bank Berhad(fka Commerce International
Merchant Bankers)

60 Alliance Investment Bank
Berhad (FKA Alliance MerchantBank Berhad)
60 AmInvestment Bank Berhad

255 United Overseas Bank
(Malaysia) Berhad
125 AmInvestment Bank Berhad

FACILITY LIMIT(RM mil)

10/10/2006

22/06/2006

14/07/2005

24/03/2006

12/10/2004

13/10/2005

29/12/2005

15/09/2005

04/10/2005

14/07/2005

14/07/2005

15/12/2004
08/06/2005

24/11/2004

15/07/2001

03/10/2002

FIRST
RATING
DATE

RAM

MARC

MARC

RAM

RAM

RAM

MARC

RAM

MARC

MARC

RAM

RAM
RAM

RAM

MARC

RAM

RATING
AGENCY146

Power plants

Segari Energy Ventures
Sdn Bhd

Tenaga Nasional Berhad UTILITIESPower plants

UTILITIES

Syarikat SESCO Berhad

Segari Energy Ventures
Sdn Bhd

BONDS

Power plants

BONDS

BONDS

BONDS

BONDS

LOANNOTESPower plants

LOANSTOCKPower plants

Segari Energy Ventures
Sdn Bhd
Segari Energy Ventures
Sdn Bhd

BONDS

Power plants

YTL Power Generation
Sdn Bhd
Port Dickson Power
BerhadINSTRUMENT
TYPE

INDUSTRYISSUER NAME

9 - 11 Years Al-Bai
Bithaman Ajil Notes
Issuance Facility

Conventional Fixed
Rate Bonds

Fixed Rate Facility

Fixed Rate Facility

ISSUE NAME

01-Oct-1997

31-Mar-1997

31-Mar-1997

17-May-1996

13-Apr-1994

12-Apr-1994

16-Dec-1993

30-Oct-1993

FIRST BOND
ISSUE DATE

01-Oct-2012

31-Mar-2009

31-Mar-2005

15-Jul-2011

30-Jun-200930-Jun-2009

09-Dec-2024

LEAD
ARRANGERCURRENT CURRENT FIRST
FIRSTRATINGRATING RATING RATING
DATE
DATE
AA1
12/01/2007 AA3
01/11/1993

2,230

1,500 Aseambankers
AA1
24/02/2006 AA3
12/04/1994
Malaysia
Berhad2,261
250 Aseambankers
Malaysia
Berhad250
522 Aseambankers
AA1
15/03/2005 AA1
15/03/2005
Malaysia
Berhad708 Aseambankers
AA1
24/02/2006 AA2
28/02/1997
Malaysia
Berhad1,000 KAF Investment AA+ ID / 26/02/2007 AAA ID / 15/10/1997
Bank Berhad
MARC-1 ID
MARC-1[fka KAF
ID
Discounts
Berhad]

1,650
761

150

FACILITY
FACILITY
MATURITY
LIMIT (RM
DATE
mil)
30-Oct-2008
1,500

D. Power

MARC

RAM

RAM

RAM

RAM

RATING
AGENCY147

Power plants

Power plants

Sarawak Power
Generation Sdn Bhd

Sejingkat Power
Corporation Sdn Bhd

BONDS

BONDS

BONDS

Power plants

Stratavest Sdn Bhd

BONDS

Serudong Power Sdn Bhd Power plants

BONDS

BONDS

Power plants

Sandakan Power
Corporation Sdn Bhd

ARL Tenaga Sdn Berhad Power plants

BONDS

Power plants

YTL Power International
Bhd

LOANSTOCKBONDSPower plants

Ranhill Powertron Sdn
Bhd

INSTRUMENT
TYPE

Tenaga Nasional Berhad UTILITIESINDUSTRYISSUER NAME

Al-Bai' Bithaman Ajil
Islamic Debt
Securities

Al-Bai' Bithaman Ajil
Islamic Debt
Securities

Al-Bai' Bithaman Ajil
Serial Bonds

10 Years Al-Bai
Bithaman Ajil Islamic
Debt Securities

Fixed Rate Serial
Bonds

Fixed Rate Serial
Bonds

Redeemable
Unsecured Bonds

8 Years Fixed-Rate
Unsecured Bonds(Issue II)

ISSUE NAME

15-Dec-2000

15-Dec-2000

27-Sep-2000

21-Sep-2000

11-Sep-2000

07-Aug-2000

11-Jan-2000

29-Dec-1998

30-Jun-1998

FIRST BOND
ISSUE DATE

15-Dec-2009

15-Dec-2006

27-Sep-2010

197 Alliance
Investment
Bank Berhad(FKA Alliance
Merchant Bank
Berhad)160 MIDF Amanah
Investment
Bank Berhad(FKA Utama
Merchant Bank
Berhad)195 MIDF Amanah
Investment
Bank Berhad(FKA Utama
Merchant Bank
Berhad)
1,619

FACILITY
FACILITYLEAD
LIMIT (RM
MATURITYARRANGER
mil)
DATE
30-Jun-2008
29 CIMB
Investment
Bank Berhad(fka Commerce
International
Merchant
Bankers)
29-Dec-2006
500 HSBC Bank
Malaysia
Berhad529
11-Jan-2007
750 Deutsche Bank
(Malaysia)
Berhad07-Aug-2007
65 OCBC Bank
(Malaysia)
Berhad10-Sep-2010
75 Alliance
Investment
Bank Berhad(FKA Alliance
Merchant Bank
Berhad)21-Sep-2010
177 Amanah Short
Deposits
BerhadD. Power (cont'd)

27/07/2006 AA1

AA1

25/08/2006 AA2

30/11/2006 AA3

A3

AA2

28/12/2006 A ID

13/02/2007 AA3

AA2

A+ ID

20/12/2006 AA3

19/04/2006 AA1

26/05/2006 AA

AA3

AA1

AA+

CURRENT CURRENT FIRSTRATINGRATING RATING
DATE

07/11/2000

06/11/2000

27/09/2000

15/05/2000

08/09/2000

13/07/2000

29/10/1999

15/12/1998

FIRST
RATING
DATE

RAM

RAM

RAM

MARC

RAM

RAM

RAM

MARC

RATING
AGENCY148

CP/MTN

BONDS

BONDS

BONDS

BONDS

BONDS

BONDS

Power plants

UTILITIES

Syarikat SESCO Berhad

Tenaga Nasional Berhad UTILITIESPower plants

Malakoff Berhad

Powertek Berhad

Teknologi Tenaga Perlis Power plants
Consortium Sdn Bhd
Tenaga Nasional Berhad UTILITIESGB3 Sdn Bhd

Power plants

BONDS

Tenaga Nasional Berhad UTILITIESBONDSCP/MTNPower plants

Prai Power Sdn Bhd

INSTRUMENT
TYPE

Tenaga Nasional Berhad UTILITIESINDUSTRYISSUER NAME

Senior Secured AlBai Bithaman Ajil
Bond Facility

Al-Istisna Fixed Rate
Serial Bonds
20 years Al-Bai
Bithaman Ajil Bonds

Redeemable
Unsecured Bonds

Repackaged Tenaga
Income Securities

Al-Bai' Bithaman Ajil
Islamic Debt
Securities

Al-Bai Bithaman Ajil
Notes Issuance
Facility
Commercial Papers

Combined
Murabahah
Underwritten Notes
Issu. Fac'ty & MTN

Al-Istisna Fixed Rate
Serial Bonds

ISSUE NAME

13-Dec-2021

19-Dec-2014

20-Dec-2001

13-Sep-2016

13-Dec-2001

13-Sep-2001

30-Aug-2011

19-Sep-2011

16-Aug-2001

30-Aug-2001

29-Jun-2012

29-Jun-2001

11-Apr-2008

28-Mar-2008

30-Mar-2001

13-Apr-2001

09-Nov-2007

AA1

AA1 / P1

15/05/2006 AA1

02/04/2001

15/05/2006 AA1 / P1 16/11/2000

350 CIMB
Investment
Bank Berhad(fka Commerce
International
Merchant
Bankers)
1,515 RHB Bank
Berhad2,000 Aseambankers
Malaysia
Berhad850 Aseambankers
Malaysia
Berhad
9,420

AA2

AA+ ID

AA3

AA1

15/12/2001

30/08/2001

14/08/2001

18/01/2007 AA2 (S) 12/09/2001

26/02/2007 AA+ ID

08/08/2006 AA3

30/10/2006 AA1

420 Citibank Berhad AA1 (S) / P1 28/07/2006 AA1 (S) / 19/02/2001
P1
AAA
13/07/2006 AA1
14/05/2001
605 CIMB
Investment
Bank Berhad(fka Commerce
International
Merchant
Bankers)
1,500 RHB Investment AA1 (S) 15/05/2006 AA1 (S) 08/08/2001
Bank Berhad

1,000 AmInvestment
Bank Berhad

400 KAF Investment
Bank Berhad[fka KAF
Discounts
Berhad]FACILITYLEAD
CURRENT CURRENT FIRSTFACILITY
FIRST
MATURITYARRANGERRATINGRATING RATING RATING
LIMIT (RM
DATE
DATE
mil)
DATE
26-Feb-2016
780 KAF Investment
AA3
22/03/2006 AA3
19/02/2001
Bank Berhad[fka KAF
Discounts
Berhad]05-Mar-2001

26-Feb-2001

FIRST BOND
ISSUE DATE

D. Power (cont'd)

RAM

MARC

RAM

RAM

RAM

RAM

RAM

RAM

RAM

RAM

RATING
AGENCY

149

Pahlawan Power Sdn Bhd Power plants

Power plants

CP/MTN

LOANSTOCKBONDSPahlawan Power Sdn Bhd Power plants

GB3 Sdn Bhd

BONDS

Power plants

Musteq Hydro Sdn Bhd

INSTRUMENT
TYPE

INDUSTRYISSUER NAME

Al-MurabahahMedium-Term
Notes/Commerial
Papers

Al-Bai' Bithaman Ajil
Fixed Rate Serial
Bonds
Al-Bai' Bithaman Ajil
Islamic Debt
Securities

ISSUE NAME

24-Sep-2002

22-Feb-2002

31-Jan-2002

30-Jan-2002

FIRST BOND
ISSUE DATEFACILITY
FACILITYLEAD
MATURITY
LIMIT (RM
ARRANGER
DATE
mil)
30-Jan-2017
108 Aseambankers
Malaysia
Berhad31-Jan-2012
450 CIMB
Investment
Bank Berhad(fka Commerce
International
Merchant
Bankers)
22-Feb-2023
287 Aseambankers
Malaysia
Berhad21-Jan-2009
100 CIMB
Investment
Bank Berhad(fka Commerce
International
Merchant
Bankers)
945

D. Power (cont'd)

AA1 / P1

AA1

18/01/2002

27/10/2006 AA1 / P1 18/01/2002

27/10/2006 AA1

CURRENT CURRENT FIRST
FIRSTRATINGRATING RATING RATING
DATE
DATE
A2
03/01/2007 A2
03/12/2001

RAM

RAM

RAM

RATING
AGENCY150

Power plants

Power plants

Tanjung Bin Power Sdn
Bhd

Tanjung Bin Power Sdn
Bhd

LOANSTOCK

MTN

BONDS

Power plants

Malakoff Berhad

MTN

BONDS

Power plants

Magna Segmen Sdn Bhd UTILITIESYTL Power Generation
Sdn Bhd

BONDS

Panglima Power Sdn Bhd Power plants

INSTRUMENT
TYPE

BONDS

INDUSTRY

Panglima Power Sdn Bhd Power plants

ISSUER NAME

Istisna Medium-Term
Notes Programme

Serial Bonds

Fixed Rate Serial
Bonds

Redeemable
Secured Serial
Bonds
Redeemable
Secured Serial
Bonds
Medium-Term Notes
Programme

ISSUE NAME

11-Nov-2003

11-Nov-2003

28-Oct-2003

07-Oct-2003

15-Jul-2003

19-Mar-2003

07-Mar-2003

FIRST BOND
ISSUE DATE

29-Aug-2031

14-May-2018

28-Oct-2013

06-Oct-2017

15-Jul-2014

18-Mar-2016

1,300 Aseambankers
Malaysia
Berhad45 Aseambankers
Malaysia
Berhad1,850 Deutsche Bank
(Malaysia)
Berhad
5,570 CIMB
Investment
Bank Berhad(fka Commerce
International
Merchant
Bankers)
1,400 CIMB
Investment
Bank Berhad(fka Commerce
International
Merchant
Bankers)
10,995330 AmInvestment
Bank Berhad

FACILITYLEAD
FACILITY
MATURITYARRANGER
LIMIT (RM
DATE
mil)
06-Sep-2013
500 AmInvestment
Bank Berhad

D. Power (cont'd)

AA3

AA2

AA3

AA1

AA2

19/01/2007 AA3

28/07/2006 AA2

07/06/2005 AA3

12/01/2007 AA1

20/10/2003

16/10/2003

07/10/2003

10/07/2003

02/10/2006 AA2 (S) 17/01/2003

CURRENT CURRENT FIRST
FIRSTRATINGRATING RATING RATING
DATE
DATE
AA2
02/10/2006 AA2 (S) 17/01/2003

RAM

RAM

RAM

RAM

RAM

RAM

RATING
AGENCY151

Power plants

Kapar Energy Ventures
Sdn BerhadCP

Tenaga Nasional Berhad UTILITIESCP/MTNCPPower plants

MTN

BONDS

INSTRUMENT
TYPE

Magna Segmen Sdn Bhd UTILITIESGB3 Sdn Bhd

ARL Tenaga Sdn Berhad Power plants

INDUSTRYISSUER NAME

Islamic Revolving
Underwritten Facility

Al-MurabahahMedium-Term Notes
Facility
Commercial Papers
Programme

7 Years Islamic
Medium-Term Notes

15 Years Bai
Bithamin Ajil Islamic
Debt Securities

ISSUE NAME

30-Nov-2004

07-Oct-2004

24-Aug-2004

08-Jul-2004

08-Jul-2004

FIRST BOND
ISSUE DATE

18-Aug-2006

07-Oct-2010

20-Feb-2009

08-Jul-2014

4,427

50 Amanah Short
Deposits
Berhad350 Aseambankers
Malaysia
Berhad25 Aseambankers
Malaysia
Berhad600 AmInvestment
Bank Berhad

FACILITY
FACILITYLEAD
LIMIT (RM
MATURITYARRANGER
mil)
DATE
08-Jul-2019
3,402 Bank Muamalat
Malaysia
BerhadD. Power (cont'd)

P1

P1

AA2 / P1

A+ ID

15/05/2004

15/05/2006 P1

07/06/2005 P1

20/08/1996

07/10/2003

18/01/2007 AA2 (S) / 12/09/2001
P1

28/12/2006 A ID

FIRST
CURRENT CURRENT FIRSTRATINGRATING RATING RATING
DATE
DATE
AA+ ID
31/10/2006 AA+ ID 15/06/2004

RAM

RAM

RAM

MARC

MARC

RATING
AGENCY

152

Tenaga Nasional Berhad UTILITIESPower plants

Power plants

Special Power Vehicle
BerhadRanhill Powertron Sdn
Bhd

MTN

Power plants

Jimah Energy Ventures
Sdn Bhd

MTN

MTN

MTN

MTN

Power plants

Special Power Vehicle
BerhadINSTRUMENT
TYPE

INDUSTRYISSUER NAME

Islamic MediumTerm Notes
Programme
USD500 million
equivalent
Murabahah Medium
Term Notes
Programme

Senior Islamic
Medium-Term Notes
Facility
Class A Islamic
Medium-Term Notes
Facility

Class B Islamic
Medium-Term Notes
Facility

ISSUE NAME

27-Jun-2019

13-Oct-2025

20-Dec-2005

19-May-2022

05-May-2025

8,289

540 Aseambankers
Malaysia
Berhad
1,900 United
Overseas Bank
(Malaysia)
Berhad797 MIMB
Investment
Bank Berhad(FKA MalaysianInternational
Merchant
Bankers
Berhad)4,847 AmInvestment
Bank Berhad

FACILITY
FACILITYLEAD
MATURITY
LIMIT (RM
ARRANGER
DATE
mil)
05-May-2034
205 MIMB
Investment
Bank Berhad(FKA MalaysianInternational
Merchant
Bankers
Berhad)27-Jun-2005

19-May-2005

12-May-2005

05-May-2005

FIRST BOND
ISSUE DATE

D. Power (cont'd)

AA1

AA3

A1 (S)

AA3 (S)

15/05/2006 AA1

09/11/2006 AA3

09/06/2006 A1 (S)

13/10/2005

15/06/2005

22/04/2005

09/06/2006 AA3 (S) 22/04/2005

CURRENT CURRENT FIRST
FIRSTRATINGRATING RATING RATING
DATE
DATE
C1 (S)
09/06/2006 C1 (S) 22/04/2005

RAM

RAM

RAM

RAM

RAM

RATING
AGENCY

153

BONDS

MTN

MTN

MTN

Power plants

Power plants

Segari Energy Ventures
Sdn Bhd

Sarawak Power
Generation Sdn Bhd

Mukah Power Generation Power plants
Sdn Bhd

Mukah Power Generation Power plants
Sdn Bhd

INSTRUMENT
TYPE

CP/MTN

INDUSTRY

Panglima Power Sdn Bhd Power plants

ISSUER NAME

Junior Sukuk
Programme

Senior Sukuk
Programme

Serial Sukuk
Musyarakah

Sukuk Ijarah Bonds

Commercial Papers

ISSUE NAMEFACILITY
FACILITYLEAD
MATURITY
LIMIT (RM
ARRANGER
DATE
mil)
27-Feb-2006
20-Jan-2010
306 AmInvestment
Bank Berhad
11-May-2006
11-May-2012
930 Aseambankers
Malaysia
Berhad26-Dec-2006
24-Dec-2021
215 RHB AssetManagement
Sdn Berhad
27-Dec-2006
27-Dec-2021
665 RHB AssetManagement
Sdn Berhad
27-Dec-2006
27-Dec-2028
285 RHB AssetManagement
Sdn Berhad
2,401
TOTAL
45,016FIRST BOND
ISSUE DATE

D. Power (cont'd)

07/11/2006 A2

07/11/2006 AA3

AA3

A2

27/07/2006 AA1

AA1

07/11/2006

02/10/2006

27/07/2006

CURRENT CURRENT FIRST
FIRSTRATINGRATING RATING RATING
DATE
DATE
AA2 / P1 02/10/2006 AA2 (S) / 17/01/2003
P1
AA1
03/05/2006 AA1
03/05/2006

RAM

RAM

RAM

RAM

RAM

RATING
AGENCYJAPAN BANK FOR INTERNATIONAL COOPERATION (JBIC)
http://www.jbic.go.jp/
4-1, Ohtemachi 1-Chome Chiyoda-ku, Tokyo 100-8144, Japan
Tel:+81-3-5218-9720 (JBIC Institute),
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JBICI Research Paper Series1
1.
Issues of Sustainable Economic Growth from the Perspective of the Four East Asian Countries,
December 1999
2.
Organizational Capacity of Executing Agencies in the Developing Countries: Case Studies on
Bangladesh, Thailand and Indonesia, December 1999
3.
Urban Development and Housing Sector in Viet Nam, December 1999
4.
Urban Public Transportation in Viet Nam: Improving Regulatory Framework, December 1999*
5.
Current Situation of Rice Distribution System in Indonesia, December 19992
6.
Energy Balance Simulations to 2010 for China and Japan, March 2000
7.
Rural Enterprises Finance: A Case Study of the Bank for Agriculture and Agricultural
Cooperatives (BAAC) in Thailand, November 2000
8-1. Issues of Sustainable Development in Asian Countries: Focused on SMIs in Thailand, December
2000
8-2. Issues of Sustainable Development in Asian Countries: Focused on SMIs in Malaysia, December
2000
9.
Policy Issues and Institutional Reform in Road Sector in Developing Countries, February 20013
10. Public Expenditure Management in Developing Countries, March 2001
11. INDIA: Fiscal Reforms and Public Expenditure Management, August 2001
12. Cash Crop Distribution System in the Philippines - Issues and Measures to Address Them -,March 2002
13. MERCOSUR Experience In Regional Freight Transport Development, March 2002
14. Regional Cooperation for Infrastructure Development in Central and Eastern Europe, March
20023
15. Foreign Direct Investment and Development: Where Do We Stand?, June 2002
16-1. Development Assistance Strategies in the 21st Century (volume1), July 2002
16-2. Development Assistance Strategies in the 21st Century (volume2), July 2002
17. Education Sector in Thailand, Vietnam, Indonesia, and Malaysia, July 20023
18. Regional Cooperation Strategy on Interconnected Power Networks in Indochina, August 2002
19. Impact Assessment of Irrigation Infrastructure Development on Poverty Alleviation: A Case
Study from Sri Lanka, November 2002
20. Macroeconomic Impact of IT Adoption and Diffusion, December 2002
21. Cost Benefit Analysis of Participatory Approach －Conceptual Review and Framework for
Qualitative Analysis－, January 2003
22. Higher Education Development in Asia － Cooperation among Universities and Building
Partnership of Universities with Private Companies－, May 2003
23. Direction of Development Policy of Central American Countries, August 2003
24. Conflict and Development: Roles of JBIC－Development Assistance Strategy for Peace Building
and Reconstruction of Sri Lanka－, August 2003
25. Religions, Ethnic and Social Issues in Indonesia and its Prospects for National Reunification－,
November 2003
26. Public Finance and Debt Sustainability in Indonesia-Structure－Policy Effects and Simulation
Analysis－, December 2003
27. Restoring Economic Growth in Argentina, January 2004
28. Issues and Challenges for Water Resources in North China－Case of the Yellow River Basin－,
March 2004
29. ODA as a Foreign Policy, July 20043
30. Pro-Poor Growth through Increasing Employment Opportunities: The Case of Agro-processing
Industry in Thailand and Kenya, August 20063
31. Impact Assessment of Irrigation Infrastructure Development on Poverty Alleviation A Case
Study from Pakistan, March 2007
32. Impact of Irrigation Infrastructure Development on Dynamics of Incomes and Poverty
Econometric Evidence Using Panel Data from Sri Lanka, March 2007

1 Full texts can be downloaded from the JBIC website.
2
3

In Japanese only. English summary can be downloaded from the JBIC website.
In Japanese only

33.
34.

Impact of Irrigation Infrastructure Development on Dynamics Dynamics of Incomes and Poverty
Econometric Evidence Using Panel Data from Pakistan, March 2007
Report on Infrastructure financing and Bond Issuance in Malaysia, March 2007

*No.1~No.14 were published as ‘JBIC Research Paper Series’.

JBIC Institute,Japan Bank for International Cooperation
4-1, Ohtemachi 1-chome, Chiyoda-ku, Tokyo 100-8144, Japan
Tel: 03-5218-9720, Fax: 03-5218-9846 (Planning and Coordination Division)
HP: http://www.jbic.go.jp/

ISSN 1347-5703

4-1, Ohtemachi 1-chome, Chiyoda-ku, Tokyo 100-8144, Japan
Tel: 03-5218-9720（JBIC Institute）
Internet: http://www.jbic.go.jp/

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