Malaysia to Scrap Mandatory Bond Credit Ratings to Boost Market

Malaysia will remove mandatory requirements for credit ratings from 2017 to broaden its corporate bond market as Prime Minister Najib Razak liberalizes more industries to lure investors.

The Southeast Asian nation will give some flexibility to credit ratings and the tradability of unrated bonds and Islamic debt from January next year, Najib said in a speech in Kuala Lumpur today, without elaborating.

“It’s a constructive move,” said Winson Phoon, a Kuala Lumpur-based fixed-income analyst at Maybank Investment Bank Bhd., a unit of the nation’s largest lender. “It removes a layer of compliance and this will make it easier for corporates to raise funds from the corporate bond market.”

Since becoming prime minister in 2009, Najib has opened up industries to overseas investors as he seeks to transform the country into a high-income nation by 2020. He said today the government will allow international credit-rating companies to operate in Malaysia without needing local partners from 2017, while the same will be applied to unit trust management companies immediately.

Market-based financing opportunities must be accessible to smaller businesses, Najib said.

“For such businesses to tap into the capital market, there must be a critical mass of investors willing and able to invest in this asset class,” he said. “Secondary market liquidity and credit risk assessment capacity are vital for building investor risk appetite.”

Malaysia, the world’s biggest Islamic debt market, has seen issuance of such securities almost double to 29.3 billion ringgit ($9.2 billion) in 2014 from a year earlier, data compiled by Bloomberg show. The Bloomberg AIBIM Bursa Malaysia Sovereign Shariah Index, which tracks the most-traded government notes, climbed 0.8 percent this year, after gaining 1.3 percent in 2013.

To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net

To contact the editors responsible for this story: Shamim Adam at sadam2@bloomberg.net Simon Harvey

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