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Business BPAM’s service could price bonds cheaper
Commentary Tags: Bank Negara Malaysia | BPAM | Meor Amri Meor Ayob | Reference Pricing Service
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Written by Ellina Badri
Podcasts Sunday, 19 April 2009 23:37
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Personal Finance KUALA LUMPUR: Bond Pricing Agency Malaysia Sdn Bhd’s (BPAM)
Property Reference Pricing Service (RPS) could reduce price discrepancies
between primary bond issues and secondary market trades, and
Lifestyle
provide an alternative to issuers for prices negotiated by investment
Deco & Garden bankers or bond arrangers.
Technology
BPAM chief executive officer Meor Amri Meor Ayob said the product
Media & Advertising
was aimed at giving the fair price of a proposed bond issue, based on
Management
the current interest rate and economic environment.
Sports
He said market studies by BPAM of AAA-rated to A-rated bonds
Insider Asia
indicated “very high” price discrepancies between the coupon rate of
RSS
new bonds and the yield on bonds in the secondary market, as indicated
UNIT TRUST by Bank Negara Malaysia’s (BNM) consolidated class curves.
Popular All Funds Fav
A bond’s pricing will indicate the yield investors receive for purchasing the bond. The yield is the rate of return for buying the
Fund 1w NAV
CIMB-I DALI Equity bond, while the coupon rate is the bond’s interest fixed at its issuance.
0.7713
Growth
Public Index 0.5216 “Our (pricing) methodology is the same, whether it is at the primary or secondary level. There should not be a change in
Public Regular Savings 0.4340
price. What is the difference between the primary market and the secondary market?
Public Bond 0.9595
Public Ittikal 0.7651
“The interest rate environment is the same, the credit rating is still the same, the risk is still the same, the asset you’re selling
Public Islamic Equity 0.2670
Public China Select 0.1505
is still the same. So there should not be a discrepancy in price,” Meor Amri told The Edge Financial Daily.
Public South-East Asia
0.1604
Select He said there was not a large time difference between when a bond was issued and when it began trading in the secondary
market.

“We assume the secondary pricing can be pushed inwards into the primary market. It doesn’t make sense, if there is a large
change in yields overnight, unless we’re a country like Bolivia or Zimbabwe. In Malaysia, the market is quite stable.
Theoretically it can happen, but it should not,” he said.

Meanwhile, BPAM’s market studies also indicated a descending trend in the traded yield of a bond within a month after its
issue. The traded yield is the profit or loss made for the trade of a bond, which is done in the secondary market.

BPAM’s market studies showed within one month of a bond’s issue, its traded yield descended quickly, in comparison to
BNM’s consolidated indicative yield which remained stable.

BPAM’s RPS could be used to reduce the spreads between a bond’s yield at issuance and its yield in the secondary market.
Meor Amri said BPAM’s pricing methodology, which it has been perfecting at the secondary level, could be used at the
primary level.

“On our side, we tell you that is the fairest price, because that is the price which people at the secondary market are willing
to buy and sell. We will give you all the information to justify the price,” he said.

Meanwhile, Meor Amri said BPAM had priced a handful of corporate issuances, with further plans to “slowly approach the
market” with its service. Its list of clients is, however, confidential.

He said the RPS could help issuers by providing the information required to make evaluated, informed decisions regarding the
pricing of their bond issue, which could then be brought to the table when an issuer was in discussions with its investment
bank or arranger.

He emphasised BPAM’s role was restricted to advising its corporate clients on the bond reference price, adding it did not
have a relationship with the bond arranger and did not negotiate with the bond arranger regarding the pricing on behalf of its
client.

Incorporated in 2004, BPAM’s main role is to provide fair valuations on bonds in the market, complying with regulations issued
by the Securities Commission. It was appointed Malaysia’s first bond pricing agency in 2006.

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