Danajamin Nasional Berhad

INTRODUCTION TO DANAJAMIN

2 August 2010

Danajamin’s Establishment

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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

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State of the PDS Market

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Corporate PDS Issuance Have Yet To Fully Recover

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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

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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

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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.

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Danajamin’s Objective

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Danajamin To Support Development Of The Bond Market

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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?

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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CASE EXAMPLE

Case Example – Property Company

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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

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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

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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

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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

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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

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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

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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