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Danajamin Nasional Berhad
INTRODUCTION TO DANAJAMIN
2 August 2010
Danajamin’s Establishment
2
Danajamin was established as recommended in the Financial Sector Masterplan
To further develop the domestic bond market as an alternative source of financing
To provide viable companies with access to bond market at reasonable costs
Danajamin’s establishment is in line with NEM and 10th Malaysia Plan
To drive private sector led growth by improving outreach of financial products and services to all segments of society
Background on Danajamin
3
State of the PDS Market
4
Corporate PDS Issuance Have Yet To Fully Recover
5
2007 2008 2009 1H100
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Private Debt Securities Issuance
Quasi-Gov'tCorporate GuaranteedFinancialCorporateABSRM
mill
ion
Non-AAA Rated Corporate PDS Issuance Are Declining
6
2007 2008 2009 1H100
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000Long Term Corporate Private Debt Securities Issuance
Not RatedBBBA AA AAARM
mill
ion
18 bil14 bil
3 bil
34 bil
Corporate PDS Issuance Are Increasingly Of Shorter Tenures
7
2007 2008 2009 1H100
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000Corporate PDS Issuance by Maturities
above 10 yrs6-10 yrs4-5 yrs1-3 yrs
9 bil 16 bil
4 bil
15 bil
Credit Spread (against MGS)
Credit Spreads (additional returns investors demand to take corporate risk) have yet to recover to pre-crisis levels except for AAA
This clearly reflects the Investors’ risk aversion – preference for high quality papers
1. Issuance of Corporate Private Debt Securities (in value & number) have yet to recover fully
2. Issuance of AAA-rated Corporate Private Debt Securities has taken top share
3. Number of issuers have been declining, leading to less diversity of issuers available for investors
4. Credit spreads have not recovered for AA and A-rated issues
Key Trends Observed
ALL THE ABOVE CAN RESULT IN CORPORATE BORROWINGS MOVING FROM CAPITAL MARKET TO
BANKS.
9
Danajamin’s Objective
10
Danajamin To Support Development Of The Bond Market
11
KEY TRENDS OBSERVED DANAJAMIN’S ROLE
Issuance of Corporate PDS (in value & number) have yet to recover fully
Encourage corporates to utilise Danajamin’s credit enhancement to raise funds via the PDS market
Issuance of AAA-rated Corporate PDS has taken top share
Danajamin’s guarantee to help a wider range of companies tap the bond market
Number of issuers have been declining, leading to less diversity of issuers available for investors
Encourage corporates to utilise Danajamin’s credit enhancement to raise funds via the PDS market. Also to focus on 1st time, non traditional issuers
Credit spreads have not recovered Provide cost savings using the guarantee
How Does Danajamin Guarantee Work?
12
ISSUERS INVESTORS
DANAJAMIN •Guarantee bonds/s
ukuk
issued
•Will
pay co
upon/profit
and princip
al on behalf o
f
issuer s
hould they f
ail to
do so
Pay fee for
guarantee provided
Provide guarantee
facility for bonds/sukuk
issuance
Provide long-term funding
Pay coupon/profit and principal
Bonds guaranteed by Danajamin will automatically be upgraded to AAA
APPLYING TO DANAJAMIN
13
14
Who Can Apply?
QUALIFYING ISSUERS
13th May 2009
15th May 2009
30th June 2009
21st July 2009
Malaysian incorporated companies and proceeds are to be used for new and existing onshore business activities
Only Ringgit denominated bonds/sukuks
Strong track record of corporate governance with sound risk management practices in place
15
Approval Process Is Transparent
EVALUATION STAGE - Discuss Concerns, Negotiate preliminary Terms & Conditions, Site Visit
Applicants/ Arrangers
Underwriting Team Risk Team
Management Underwriting
Committee
Board Underwriting
Committee
Letter of Offer Issued
Preliminary Presentation
All applications must be approved by 2 levels of committee
UNDERWRITING CRITERIA
16
17
Underwriting Principles
Project viability
Adequate control of
fund disbursements
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring post issuance
Constant surveillance
SET BENCHMARK FOR BOND STRUCTURETIGHTER CRITERIA:
ABOVE MARKET STANDARDS
Project Viability
Viability of project: e.g. Property project – location, potential demand, stress test
Reasonableness of assumptions and projections by companies
Viability of company: track record, financial strength
Clear Purpose of Fund Utilisation Clearly identified
Reasonable & realistic
Fits into current business model
18
Project viability
Adequate control of fund disbursements
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
Operating company as the issuer to ensure better control of fund disbursement
Funds are captured in a Disbursement Account and the release of funds are controlled by Danajamin to match the purpose and progress achieved
19
Adequate Control of Fund Disbursements Project
viability
Adequate control of fund disbursements
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
Repayment source identified upfront
Source is sustainable & clear
Revenue Account to capture cash inflows
Finance Service Reserve Accounts (FSRA) incorporated into all Danajamin bond structures
FSRA jointly controlled by Danajamin
Parent company undertakes to top up FSRA if inadequate
20
Adequate Ringfencing Of Revenue/Cashflow For Repayment Of Bonds
Project viability
Adequate control of fund disbursements
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
Typical security arrangement for the project e.g. land charge, debentures etc.
Additional corporate Guarantee from parent company
21
Sufficient Security ArrangementsProject viability
Adequate control of fund disbursements
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
Financial Covenants
Debt to Tangible Networth EBITDA Interest Cover Ratio Debt Service Cover Ratio Debt to EBITDA
Non-Financial Covenants
Non disposal of assets /acquisition of assets in excess of 5% of the company’s NTA No related party transactions unless those disclosed To notify if there are changes in shareholders and management Credit Impairment Event - breaches of covenants could lead to imposition of
additional covenants, request for additional security or increased reporting frequency
Right to appoint auditors, monitoring accountants upon Credit Impairment Event
Appropriate Covenants Based On Projections
22
Project viability
Adequate control of fund disbursements
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
Submission of annual and quarterly/half-yearly accounts by issuers
Operating statistics (monthly/quarterly)
Monthly statement of designated accounts
Internal Early Alert Process – credits are monitored diligently upon occurrence of any events that may affect the repayment of bonds
Credit Impairment Event under Danajamin’s Guarantee Facility Agreement (GFA) with Issuer
triggers right to additional security, tighter monitoring and external audit
23
Stringent Monitoring Post IssuanceProject viability
Adequate control of fund disbursements
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
Issuing Danajamin Guaranteed Bonds
24
LETTER OF OFFER
•Danajamin issues letter of offer to guarantee bonds, once application is approved by both Management and Board Committees
ACCEPTANCE OF LETTER OF OFFER
•Applicant accepts letter of offer if agreeable with terms
SIGNING OF AGREEMENT
•Danajamin and applicant sign agreement
CONDITIONS PRECEDENT
•Applicant needs to fulfill all conditions precedent set out in agreement before guarantee can be issued
GUARANTEE ISSUED
•Once Conditions Precedent fulfilled, the financial guarantee will be issued
Danajamin Guaranteed
Bonds issued
Corporations still need to go through the normal process of issuing bonds
25
CASE EXAMPLE
Case Example – Property Company
26
About the company Wholly owned subsidiary of a Public-listed company, developing an
integrated mall and serviced apartment complex on a prime land. Company has successfully completed two other projects in the same locality
Funding requirements Requires long term fixed rate funding to finance the construction of the mall
complex
Danajamin’s involvement Guaranteeing the company’s PDS with a tenure of 5 years
Significance Support for a project that would spur tourism and domestic consumption
Situated in a very good location
Phase 2 of a successful project
First mall to be developed and managed by the developer which will allow control of the tenant mix and to manage and operate the mall to achieve optimum rental income.
Good track record of the company in completing projects undertaken at that location
Land has already been fully paid for and contributed as equity
Property Company – Viability
27
Project viability
Adequate control of
fund disbursement
s
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow
for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
Property Company - Disbursement Account to Control Utilisation of Proceeds
28
Proceeds from Bonds issuance
Proceeds from Bonds issuance
Disbursement Account
Disbursement Account
To part-finance construction against documentary evidence of works completed
To part-finance construction against documentary evidence of works completed
Controlled by Danajamin
Project viability
Adequate control of fund disbursements
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
Property Company – Ringfencing of Cashflows
29
PrincipalTo be built up monthly, 11 months prior to principal repayment due date.
PrincipalTo be built up monthly, 11 months prior to principal repayment due date.
Proceeds from sales of shop lots, rental collection from tenants of mall, car park operations, any withdrawals from Housing Development Account
(“HDA”) (in respect of serviced apartments) for land cost/works done to date, all proceeds of insurance claims, shareholder advances (if any)
Proceeds from sales of shop lots, rental collection from tenants of mall, car park operations, any withdrawals from Housing Development Account
(“HDA”) (in respect of serviced apartments) for land cost/works done to date, all proceeds of insurance claims, shareholder advances (if any)
Finance Service Reserve Account (“FSRA”)Finance Service Reserve Account (“FSRA”)
Guarantee fee / interestTo be built up monthly, 5 months prior to guarantee/interest payment due date.
Guarantee fee / interestTo be built up monthly, 5 months prior to guarantee/interest payment due date.
Project Revenue Account (“PRA”)Project Revenue Account (“PRA”)
To part finance construction in addition of PDS proceeds
To part finance construction in addition of PDS proceeds
Controlled by Danajamin
Controlled by Danajamin
Project viability
Adequate control of
fund disbursement
s
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow
for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
Charge of Project Land
Project debenture by way of a fixed and floating charge over the Project
Corporate guarantee of parent company, listed in Bursa Malaysia
Assignment/charge over all sales and rental proceeds and accounts
Property Company - Comprehensive Security Package
30
Project viability
Adequate control of
fund disbursement
s
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow
for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
For the Issuer and Parent – Limit to Gearing
Upon completion of the construction works, maximum margin of financing is set at 50%
Property Company – Financial Covenants
31
Project viability
Adequate control of
fund disbursement
s
Clear purpose of
funds utilisation
Adequate ringfencing of cashflow
for repayment
Sufficient security
arrangements
Appropriate covenants based on
projections
Stringent monitoring
Constant surveillance
1. Danajamin’s establishment is part of the Government’s measure to enhance access to the bond market
2. What sets us apart – we can provide long-term fixed rate financing, at a reasonable cost
3. Consistency – all applications for guarantee subjected to consistent underwriting principles
4. Danajamin sets a new benchmark for bond structure
Summary
32
THANK YOU
For more information, please contact us at :
Danajamin Nasional Berhad,Level 25, The Gardens North Tower
Mid Valley CityLingkaran Syed Putra59200, Kuala Lumpur
Tel : 03 – 2299 2000 Fax : 03 – 2299 2100
danajamin@danajamin.comwww.danajamin.com
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