Tuesday, February 9, 2010

Danajamin to launch first wrapped issue

by Bhupinder SinghDanajamin Nasional Bhd says its first credit enhanced debt issue is imminent. The financial guarantee institution is now undergoing the final phase of documentation and expect to close the transaction by the end of this month, without revealing any name or underlying value of issue.
The market was expecting the wholly government owned company to announce its first deal last year when companies were more in need of financing and had submitted with the necessary ratings to support, but nothing has yet came to pass.
"The delay was due to negotiations with the customer as well as the finalisation of certain issues, including those relating to Shariah compliance. Some proposals had to be declined as they do not meet our underwriting criteria or were not sufficiently structured to address the respective risks.
Danajamin will only wrap companies that fulfil our credit criteria. We need to ensure that our product and the deal is well structured to sufficiently protect Danajamin’s interests," the company said in a written reply.

While investment bankers tell The Malaysian Reserve they have had discussions with Danajamin and made submissions on behalf of clients, they are still unclear on issues like how the coupon rate to be paid by the company for a successful Danajamin guaranteed issue will be calculated and paid.
In an interview last year Danajamin chief executive officer Ahmad Zulqarnian Onn said the successful companies would be required to pay the coupon total upfront for the entire tenure but bankers say this may be taxing on the debt issuer.
"Our guarantee fees are determined based on risk and will naturally vary from company to company based on our assessment. Our normal process entails providing indicative fees to companies once sufficient information such as cashflow projections and security arrangements is made available to us," Danajamin said.

Danajamin on its part said it had made clear on certain principles — that its underwriting work if not being subordinated to other creditors, not guaranteeing bonds where there is not specific utilisation and not guaranteeing equity financing – all of which have been a reason for it to decline a number of applications.
Hence, the pioneer Danajamin wrapped issue this month is eagerly awaited by the market as it will give a benchmark to investors, companies, investment bankers and rating agencies on Danajamin’s fee structure and underwriting criteria.
Since the wrapped issue will carry a AAA rating and investor money guaranteed by Danajamin, many expect selling the debt paper will not be a problem. Danajamin’s maximum underwriting limits to is currently set at RM500 million for secured issuance and RM300 million for unsecured issuance.
With most of the two economic stimulus package money already utilised to support economic recovery, the slow starter Danajamin, which was set up last May with a paid up capital of RM1 billion, need to move faster to strike a balance between to need to be prudent with the role of supporting the relatively immature bond market where investors had become averse to risky debt paper rated A and below.

(This story appeared in The Malaysian Reserve on 8 Feb 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

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