Recently, Securities Commission Malaysia (SC) launched the Malaysian retail bonds and sukuk framework that allows retail investors to directly invest in bonds and sukuk. The framework is part of the initiative under the SC’s Capital Market Masterplan 2 to facilitate greater retail participation in the bond and sukuk market.
The retail bonds and sukuk framework is intended to meet retail investors’ demand for access to a wider range of investment products. Issuers will now also have access to a larger pool of investors.
The framework will come into two phases,
Phase 1
- Eligible issuers are the Malaysian Government and any company whose issuances are guaranteed by the Malaysian Government.
- Return on capital for government-guaranteed bonds and sukuk is guaranteed if the instruments are held to maturity.
Phase 2
- Retail bonds and sukuk framework will be expanded to include the following issuers:
- A public company listed on Bursa Malaysia (PLC);
- A bank licensed under the Banking and Financial Institutions Act 1989 or Islamic Banking Act 1983;
- Cagamas Berhad; and
- An unlisted public company whose bond and sukuk issuance is guaranteed by Danajamin Nasional Berhad, Credit Guarantee and Investment Facility or any of the eligible issuers above.
- The return on capital is subject to the terms and conditions from the issuer. The principal invested will be returned to the investor unless the issuer defaults on the bonds or sukuk.
- The issuance of the relevant regulations and guidelines for the second phase is targeted for January 2013.
The bonds and sukuk will be traded in both the exchange (Bursa Malaysia) and over-the-counter (OTC) via appointed banks. However, can only sell your retail bonds or sukuk on the same platform which you originally purchased.
What is sukuk or bond?
Simply stated, bonds are IOUs. In exchange of the use of investor money, the issuer pays the investor interest and returns the original investment amount at the end of the term. Sukuk is the Islamic version of bond.
In terms of risk, risk/return profile of bonds lies between cash and stocks.