Bond Equity

8/12/2019 Bond Equity

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Question 1

When was the Second DanaInfra

Retail Sukuk offered?


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Question 1

When was the Second DanaInfra Retail Sukukoffered?

The Offer Period of this Second DanaInfra RetailSukuk is from 9.00 a.m on 24 October

2013 to 5.00 p.m on 15 November 2013


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Question 2

What is the objective of Exchange

Traded Bond (ETBS) or Sukuk?


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Question 2

What is the objective of Sukuk?

The Syariah-compliant Retail Sukuk was offered

to the general public and retail investors who wishto invest in the Exchange Traded Bond / Sukuk

(ETBS) and participate in funding the

development of the nations key infrastructure

project i.e. the Mass Rapid Transit (MRT) Poject.


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Question 3:What are the characteristics of

ETBS?


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Question 3:Characteristics:

Amount : Up to RM100,000,000.00 Nominal

Value Tenure : 15 years

Profit rate : 4.58% per annum

Fixed income security/ Bond

Trade on stock market

Guarantee by Malaysian Government


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Question 4

Why should investors put their

money in ETBS?


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Question 4

Why should investors put their money in ETBS? Flexibility and Ease of Trading: ETBS are traded on

Bursa Malaysia, making the buying and selling ofETBS as easy as trading in shares.

Transparency: As ETBS are listed on the bourse,

investors will have access to real-time prices andvolumes, just like shares. This will enable investors tocontinuously monitor their investments and receiveup-to-date information.

Diversification: Investors can diversify their portfolio to

include ETBS to complement their investments inother asset classes such as equities, derivatives, unittrusts, etc.

Additional Income Stream: Investors can benefit froma steady income stream through regular coupon

payments.


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Question 5:

What are the risks when you invest inETBS?


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Question 5: What are the risks? Credit risk

This risk arises if the ETBS issuer is unable to pay thecoupon payment on the coupon date or the principalamount to the lender at maturity. Government bonds

and sukuk are backed by the central government,thus deemed to have a low credit risk.

Market riskThis is the risk of price fluctuations and is impacted bythe demand and supply in the market.

Interest rate riskValuation of the ETBS may be affected by thechanges in interest rates e.g. if the interest rate rises,ETBS prices will fall as investors may relocate theirinvestment to capture a rise in interest rates availablein other instruments, for example, in bank deposit.


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Question 6

How should I invest in ETBS?


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Question 6

How should I invest in ETBS?

ETBS trade like stocks, and are subject to the

same trading payment and settlement rules (T+ 3).

You will need to visit your nearest Participating

Organisation (stock broking firm registered with

Bursa Malaysia) to open a securities trading

account and Bursa Central Depository System

(CDS) account.


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Question 7

What are the differences betweenCommercial and Islamic Banking?


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Financial Markets

What is Financial Markets?

Channel funds from savers to investors, thereby

Promoting economic efficiency

Affect personal wealth and behavior of business

firms


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Major Financial Markets

Bond Market

Stock Market

Foreign ExchangeMarket


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Bond Market

Bonds are an example of a debt contract.

A debt contract is simply a promise to repay

an amount in the future in exchange for funds

now.A bond is a kind of a debt contract that is

marketable, that is it can be bought and sold

in a market.

For example, to raise funds, Proton Holdingsmight sell a bond, which is a promise to repay

the money plus interest some time in the

future.


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Stock Market

Stock represents share/ownership in the company sothat stockholders can vote on who manages thecompany.

Owner of stocks may buy or sell their share in the stockmarket (e.g. London Stock Exchange, KLSE)

Firms/company may raise their fund through InitialPublic Offerings (IPO)

Stock Price volatility Stock Price Bubbles

Technology bubble in 1990s?


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Foreign Exchange Market

It is the activity of funds transfer from onecountry to another

There are a variety of different currencies in

the world: dollars (US), Yen (Japan), Euros(13 nations of the European Community)

among many others.

The value of currencies differs from one

another and subject to international trade. The market where currencies are exchanged

is called the foreign exchange market.


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Classification of Financial

Markets

1. Primary Market New security issues sold to initial buyers (often behind

closed doors)

Investment banks typically underwrite securities (i.e.

guarantees a price for the security and then sells it to thepublic)

2. Secondary Market

Securities previously issued are bought and sold. E.g.:

NASDAQ, Futures, Options, Foreign Exchange

Exchanges

Trades conducted in central locations (e.g., New York Stock

Exchange, NYSE; London Stock Exchange, LSE)

Over-theCounter Markets

Dealers at different locations buy and sell


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Methods of Raising

Private Sector Funds

Debt Markets Short-term (maturity < 1 year): Money Market

Intermediate-term (1year < maturity < 10 years)

Long-term (maturity > 10 years)

Equity Markets

Common stocks: claims to share in assets and net

income

No maturity date; periodic payments known as

dividends

Capital Market

Intermediate + Long Term Debt + Equity

Examples: Bonds, mortgages


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Financial Market Instruments

What are the kinds of securities traded in financialmarkets?

Money Market Instruments

Because of short term to maturity, debt instruments

traded in the money market do not have much

fluctuation in their prices, and hence are the least

risky

Capital Market Instruments

Debt and equity instruments with maturities greater

than a year; these have much greater fluctuations

in their prices (compared to money market

instruments) and as such are considered more risky


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Examples: Money

Market Instruments Treasury Bills

Issued by US govt, with 1, 3, and 6 month

maturities.

Pay a set amount at maturity, and have no interest

payments; effectively pay interest by selling at adiscount.

Negotiable Bank Certificates of Deposit

CDs are debt instruments sold by banks to

depositors that pays an annual interest of a givenamount, and pays back the original purchase price

at maturity

Commercial Paper

Short term debt instrument issued by large banks


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Examples: Money Market

Instruments

Repurchase Agreements

Repos are effectively short term loans

(usually with a maturity of less than 2

weeks) for which T-bills serve as collateral.The most important lenders in this market

are usually large corporations.

Federal (Fed) Funds

These are typically overnight loans of

reserves between banks, of their deposits at

the Federal Reserve.

xamp es: ap a ar e


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xamp es: ap a ar eInstruments

Stocks These are equity claims on net income and assets of a

corporation. Issue of new stocks in any given year is typically quite small,

although the total value of stocks exceed that of any othertype of security in the capital markets.

Mortgages Mortgage market is the largest debt market in the US Residential mortgages are approximately 4 times the amount

of commercial and farm combined.

Corporate Bonds

Long term bonds issued by corporations with very strongcredit ratings. Typical corporate bond sends the holder an interest payment

twice a year and pays off the face value when the bondmatures.

Some convertible corporate bonds allows the holder toconvert them into a specified number of shares of stock at anytime up to the maturity date.


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Comparison between Bond and

Equity

Bonds/Sukuk Shares

Bonds/Sukuk are Debt Securities Stocks are Equity Securities

Bonds/Sukuk holder - they are the

owner of a bond asset and do not

have rights to the ownership of the

company

Shareholder - an owner of the

company

Steady flow of payments known as

coupon/dividends

Dividend payments based on the

policy and performance of the

company

Generally less volatile Impacted by market volatility and

forces

Time limit or maturity period Do not have a maturity period, unless

delisted

Trade size is 10 units Trade Size is 100 units


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Quiz:

What are the differences betweenCommercial and Islamic Banking?

Diff b t C ti l


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Difference between Conventional

and Islamic bankingConventional Banking Islamic Banking

Money is a commodity besides medium ofexchange and store of value. Therefore, it

can be sold at a price higher than its face

value and it can also be rented out.

Money is not a commodity though it is used

as a medium of exchange and store of

value. Therefore, it cannot be sold at a

price higher than its face value or rented

out.

Time value is the basis for charging

interest on capital.

Profit on trade of goods or charging on

providing service is the basis for earning

profit.

Interest is charged even in case the

organization suffers losses by using

banksfunds. Therefore, it is not based

on profit and loss sharing.

Islamic bank operates on the basis of profit

and loss sharing. In case, the businessman

has suffered losses, the bank will share

these losses based on the mode of finance

used (Mudarabah, Musharakah).

While disbursing cash finance, running

finance or working capital finance, no

agreement for exchange of goods &

services is made.

The execution of agreements for the

exchange of goods & services is a must,

while disbursing funds under Murabaha,

Salam & Istisna contracts.

Conventional banks use money as a

Islamic banking tends to create link with

the real sectors of the economic system by

using trade related activities. Since, the

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