Money maker

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With its in-depth expertise in Shariah finance, RAM Holdings is an important service provider for Islamic banking and finance in Malaysia and beyond. As a core service, it operates its own ratings business for Islamic as well as conventional products.

Interviewee: Tan Sri Datuk C. Rajandram, Executive Deputy Chairman, Group Chief Executive Officer, RAM Holdings Berhad.

Q: RAM Holdings has diversified its services since its establishment in 1990 as the nation’s first credit rating agency. What are the services provided now and what are the drivers for the diversification?

A: Since its establishment in 1990, RAM has continued its efforts to help develop the domestic bond market as well as upgrading skill levels in the fields of credit evaluation and risk management. Over the past 20 years, RAM has evolved in tandem with the increasing sophistication and needs of the domestic bond market. The suite of products offered by RAM has expanded from credit ratings and to country assessment, economic research and advisory services, specialised training on credit analysis and soft skills, risk management and project advisory, credit information, as well as bond pricing services. The main driver for these strategic diversification is the fact that the institution has reached a stage where it can better leverage on the expertise and experience gained over the years. This is also in line with the management’s goals of broadening the group’s income base beyond its core ratings business. On the international front, RAM has also taken its expertise abroad to countries like Sri Lanka, Bangladesh, and Kazakhstan as part of its strategy to diversify geographically.

Q: Global capital markets were in bearish territory during the 2008-2009 financial crisis. Did Malaysian debt instruments also face extreme difficulties either on primary or secondary markets during that period?

A: Despite the turmoil in the global capital markets during the financial crisis, the Malaysian debt market was relatively unscathed both at the primary and the secondary market levels. Although gross new issuance in the Malaysian Private Debt Securities (PDS) market waned 28.4 per cent to RM49.7 billion in 2008, it remained significant. This was followed by a string rebound in gross new issuance to RM58.6 billion in 2009. Default rates of RAM-rated issues also remained benign during this period, given that the portfolio comprised mainly issuers that were of relatively strong credit profiles, with a median rating band of AA3/A1. While it was not surprising that Malaysia’s economic momentum and domestic investor sentiment did take a dip during the global financial crisis, some opportunities presented itself for both the Malaysian bond market and RAM. As liquidity in US dollar dominated debt markets was tight, several fundamentally strong issues particularly from the GCC and South Korea began to view the Malaysian bond market as a funding oasis. This has allowed RAM to expand its analytical coverage to include these foreign entities which tapped the ringgit bond market.

Malaysian bond investors gained the opportunity to invest in foreign names while still keeping to their ringgit-investing mandates. While the global debt markets have somewhat regained composure and have resumed their normal functioning, Malaysia continues to attract foreign issuers from various other jurisdictions seeking to diversify their funding sources.

Q: What are the main differences between assigning credit rating to conventional debts and assigning credit rating to sukuk?

A: RAM Ratings rates both conventional bonds and sukuks. In essence, a credit rating for conventional bonds or sukuk examines the ability of an issuer to meet its financial obligations in a full and timely manner. In rating sukuk, while we do consider the Shariah aspects of the issue, it is often not a key rating driver. In the context of the Malaysian sukuk market, the issue of Shariah compliance is generally reviewed and addressed by the Shariah advisor(s) or panel appointed for the transaction. In addition, capital market participants benefit from the establishment of the Shariah Advisory Council under the Securities Commission of Malaysia, which serves as a reference centre for all Islamic capital market issues, apart from approving applicable Shariah principles and concepts for the Malaysian market. Hence, all sukuk rated by RAM Ratings would have already obtained Shariah approval. Consistent with our role as a credit rating agency – which is to provide the market with independent and objective opinions in the creditworthiness of issuers of issues – our sukuk ratings principally focus on the credit aspects of the transaction. RAM Ratings was recently awarded The Most Outstanding Rating Agency for Sukuk 2011 by the Kuala Lumpur International Islamic Finance Forum. This is a testimony to our forte in rating sukuk.

Q: Does RAM Holdings provide services for conventional as well as for Islamic capital markets?

A: The services RAM offers cater to both the conventional as well as the Islamic capital markets. RAM Ratings rates both conventional bonds and sukuks. In 2010, more than 50 per cent of the PDS rated by RAM were sukuk. In addition to rating sukuk, RAM Ratings also provides credit ratings on Islamic financial institutions such as Islamic banks and takaful insurers. Similarly, our bond pricing agency provides valuation services to both conventional bonds and sukuks.

Q: How much visibility and interest does the sukuk market offer investors now compared to the past?

A: The issuance of sukuk in the Malaysian capital markets has been gaining a lot of momentum over the years. Sukuk issuances represent more than half of the total issuances in the market. Malaysia has an active environment of both sukuk issuers and investors and this combined with a robust regulatory framework has played a crucial role in the development of the sukuk market. Currently, Malaysian-originated sukuk issuances account for close to 70 per cent of global sukuk issuances by value.

Q: What role does Malaysia play in the global Islamic debt capital market?

A: Malaysia has a perceptible influence from innovation in the capital markets to developing cogent education policies. Even with a dual market, where conventional and Islamic finance coexist, the government gas shown more enterprise and boldness to create an infrastructure which will fortify the domestic and global Islamic finance market. Not fettered by the idea that Islamic thought development belongs to the Middle East, the government has taken necessary steps to ensure that Islamic finance will thrive, both domestically and globally. Malaysia has an array of Shariah compliant products and an alternative for almost every conventional product available. Malaysia’s dominance in the sukuk market, as compared to its GCC competitors, owes itself to the broader breadth of its capital market. There is far a more active secondary market in Malaysia. The country is also considered to have the most systematic approach to Islamic financial services regulation, and one that is continuously improving. A major benefactor has been the government which has allowed innovations and developments and encouraged the creation of an institutional framework which supports the Islamic capital market.  The Malaysian legal framework for Islamic finance is also undoubtedly one of the most comprehensive compared to other jurisdictions. Malaysia’s progressive development of the Islamic capital market is not parochial in outlook and delimited to within the borders of Malaysia. This is evident from the fact that multinational organisations such as the Islamic Financial Services Board (IFSB) and International Islamic Liquidity Management Corporation (IILM) are all based here. Malaysia had already created the Bursa Suq al Sila, an electronic platform that enables banks and companies to buy and sell basic commodities that are used as assets to back Islamic financing, thus managing short term liquidity. Boasting a vibrant and dynamic market, Malaysian institutions such as the International Centre for Education in Islamic Finance (INCEIF) and International Shariah Research Academy (ISRA) as well as its scholars are highly sought after by countries wishing to develop their own Islamic finance capacity.

Q: What role does RAM Holdings play in the global Islamic debt capital market?

A: RAM continues to play a supporting role in the development of Islamic capital markets both domestically and internationally. We strive to do these through our own initiatives as well as contributing our expertise to various government-led programs. RAM has established its Islamic issues as well as Shariah issues arising from other jurisdictions. RAM has also been actively promoting awareness and understanding of Islamic finance through participation in local and international conferences as exhibitor and speaker, provision of training as a registered trainer for SC’s Islamic Market Capital Training Scheme as well as i-Shariah Advisor program, and regular publications of research papers on Islamic capital markets. RAM has provided training on Islamic ratings to several other domestic credit rating agencies in Asia. RAM is also a committee member in the MIFC Strategic Focus Group spearheaded by Bank Negara Malaysia. The focus group looks into Islamic finance issues from the domestic as well as the global perspectives.

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Reading Time: 5 minutes

With its in-depth expertise in Shariah finance, RAM Holdings is an important service provider for Islamic banking and finance in Malaysia and beyond. As a core service, it operates its own ratings business for Islamic as well as conventional products.

Reading Time: 5 minutes

With its in-depth expertise in Shariah finance, RAM Holdings is an important service provider for Islamic banking and finance in Malaysia and beyond. As a core service, it operates its own ratings business for Islamic as well as conventional products.

Interviewee: Tan Sri Datuk C. Rajandram, Executive Deputy Chairman, Group Chief Executive Officer, RAM Holdings Berhad.

Q: RAM Holdings has diversified its services since its establishment in 1990 as the nation’s first credit rating agency. What are the services provided now and what are the drivers for the diversification?

A: Since its establishment in 1990, RAM has continued its efforts to help develop the domestic bond market as well as upgrading skill levels in the fields of credit evaluation and risk management. Over the past 20 years, RAM has evolved in tandem with the increasing sophistication and needs of the domestic bond market. The suite of products offered by RAM has expanded from credit ratings and to country assessment, economic research and advisory services, specialised training on credit analysis and soft skills, risk management and project advisory, credit information, as well as bond pricing services. The main driver for these strategic diversification is the fact that the institution has reached a stage where it can better leverage on the expertise and experience gained over the years. This is also in line with the management’s goals of broadening the group’s income base beyond its core ratings business. On the international front, RAM has also taken its expertise abroad to countries like Sri Lanka, Bangladesh, and Kazakhstan as part of its strategy to diversify geographically.

Q: Global capital markets were in bearish territory during the 2008-2009 financial crisis. Did Malaysian debt instruments also face extreme difficulties either on primary or secondary markets during that period?

A: Despite the turmoil in the global capital markets during the financial crisis, the Malaysian debt market was relatively unscathed both at the primary and the secondary market levels. Although gross new issuance in the Malaysian Private Debt Securities (PDS) market waned 28.4 per cent to RM49.7 billion in 2008, it remained significant. This was followed by a string rebound in gross new issuance to RM58.6 billion in 2009. Default rates of RAM-rated issues also remained benign during this period, given that the portfolio comprised mainly issuers that were of relatively strong credit profiles, with a median rating band of AA3/A1. While it was not surprising that Malaysia’s economic momentum and domestic investor sentiment did take a dip during the global financial crisis, some opportunities presented itself for both the Malaysian bond market and RAM. As liquidity in US dollar dominated debt markets was tight, several fundamentally strong issues particularly from the GCC and South Korea began to view the Malaysian bond market as a funding oasis. This has allowed RAM to expand its analytical coverage to include these foreign entities which tapped the ringgit bond market.

Malaysian bond investors gained the opportunity to invest in foreign names while still keeping to their ringgit-investing mandates. While the global debt markets have somewhat regained composure and have resumed their normal functioning, Malaysia continues to attract foreign issuers from various other jurisdictions seeking to diversify their funding sources.

Q: What are the main differences between assigning credit rating to conventional debts and assigning credit rating to sukuk?

A: RAM Ratings rates both conventional bonds and sukuks. In essence, a credit rating for conventional bonds or sukuk examines the ability of an issuer to meet its financial obligations in a full and timely manner. In rating sukuk, while we do consider the Shariah aspects of the issue, it is often not a key rating driver. In the context of the Malaysian sukuk market, the issue of Shariah compliance is generally reviewed and addressed by the Shariah advisor(s) or panel appointed for the transaction. In addition, capital market participants benefit from the establishment of the Shariah Advisory Council under the Securities Commission of Malaysia, which serves as a reference centre for all Islamic capital market issues, apart from approving applicable Shariah principles and concepts for the Malaysian market. Hence, all sukuk rated by RAM Ratings would have already obtained Shariah approval. Consistent with our role as a credit rating agency – which is to provide the market with independent and objective opinions in the creditworthiness of issuers of issues – our sukuk ratings principally focus on the credit aspects of the transaction. RAM Ratings was recently awarded The Most Outstanding Rating Agency for Sukuk 2011 by the Kuala Lumpur International Islamic Finance Forum. This is a testimony to our forte in rating sukuk.

Q: Does RAM Holdings provide services for conventional as well as for Islamic capital markets?

A: The services RAM offers cater to both the conventional as well as the Islamic capital markets. RAM Ratings rates both conventional bonds and sukuks. In 2010, more than 50 per cent of the PDS rated by RAM were sukuk. In addition to rating sukuk, RAM Ratings also provides credit ratings on Islamic financial institutions such as Islamic banks and takaful insurers. Similarly, our bond pricing agency provides valuation services to both conventional bonds and sukuks.

Q: How much visibility and interest does the sukuk market offer investors now compared to the past?

A: The issuance of sukuk in the Malaysian capital markets has been gaining a lot of momentum over the years. Sukuk issuances represent more than half of the total issuances in the market. Malaysia has an active environment of both sukuk issuers and investors and this combined with a robust regulatory framework has played a crucial role in the development of the sukuk market. Currently, Malaysian-originated sukuk issuances account for close to 70 per cent of global sukuk issuances by value.

Q: What role does Malaysia play in the global Islamic debt capital market?

A: Malaysia has a perceptible influence from innovation in the capital markets to developing cogent education policies. Even with a dual market, where conventional and Islamic finance coexist, the government gas shown more enterprise and boldness to create an infrastructure which will fortify the domestic and global Islamic finance market. Not fettered by the idea that Islamic thought development belongs to the Middle East, the government has taken necessary steps to ensure that Islamic finance will thrive, both domestically and globally. Malaysia has an array of Shariah compliant products and an alternative for almost every conventional product available. Malaysia’s dominance in the sukuk market, as compared to its GCC competitors, owes itself to the broader breadth of its capital market. There is far a more active secondary market in Malaysia. The country is also considered to have the most systematic approach to Islamic financial services regulation, and one that is continuously improving. A major benefactor has been the government which has allowed innovations and developments and encouraged the creation of an institutional framework which supports the Islamic capital market.  The Malaysian legal framework for Islamic finance is also undoubtedly one of the most comprehensive compared to other jurisdictions. Malaysia’s progressive development of the Islamic capital market is not parochial in outlook and delimited to within the borders of Malaysia. This is evident from the fact that multinational organisations such as the Islamic Financial Services Board (IFSB) and International Islamic Liquidity Management Corporation (IILM) are all based here. Malaysia had already created the Bursa Suq al Sila, an electronic platform that enables banks and companies to buy and sell basic commodities that are used as assets to back Islamic financing, thus managing short term liquidity. Boasting a vibrant and dynamic market, Malaysian institutions such as the International Centre for Education in Islamic Finance (INCEIF) and International Shariah Research Academy (ISRA) as well as its scholars are highly sought after by countries wishing to develop their own Islamic finance capacity.

Q: What role does RAM Holdings play in the global Islamic debt capital market?

A: RAM continues to play a supporting role in the development of Islamic capital markets both domestically and internationally. We strive to do these through our own initiatives as well as contributing our expertise to various government-led programs. RAM has established its Islamic issues as well as Shariah issues arising from other jurisdictions. RAM has also been actively promoting awareness and understanding of Islamic finance through participation in local and international conferences as exhibitor and speaker, provision of training as a registered trainer for SC’s Islamic Market Capital Training Scheme as well as i-Shariah Advisor program, and regular publications of research papers on Islamic capital markets. RAM has provided training on Islamic ratings to several other domestic credit rating agencies in Asia. RAM is also a committee member in the MIFC Strategic Focus Group spearheaded by Bank Negara Malaysia. The focus group looks into Islamic finance issues from the domestic as well as the global perspectives.

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