The liberalization of credit rating to bond industryin Malaysia will increasingly significant role of the discerning investor inthe bond market. It will provide more opportunities for investors to capitaliseon greater liquidity and market participation.
However, investorswould not get any protection in their investment without credit ratingrequirement especially for those risk-adverse investors. They need to considerdifferent type of risks such as interest rate risk, inflation risk, creditrisk, liquidity risk, industry risk and market risk when evaluating their bondrelated decisions.So, investors would have accessibility to theinformation of companies that they are interested in order to do their owncredit assessment and investment decision making. Issuers are required to bemore transparent and providing the company information of bonds and sukuk that shouldbe implemented to facilitate investment decision making. Furthermore, some ofthe investors who are lack of knowledge in financial strength andcreditworthiness of the companies will still require the independent thirdparty such as Malaysian Credit Rating Corporation Berhad (MARC) or RAM forassisting them to monitor and analyse the credit risks of bonds. So, they can notifyand give comments for the investors about the changes in the credit rating ofthe bond issuers.
Companies with very high credit rating will removetheir ratings but they would get the benefits from this liberalization becausethe cost of issuing bonds would be reduced. This is good for the issuers tomake the businesses easier because getting a rating will need to chargeexpensive credit rating fees by rating agencies. The issuers may save thecredit rating fees in order to pay the extra premium for investors who earnedadditional premium to compensate for the absence of credit rating. Besides, it will also attract foreign issuers asthey are allowed to fully own unit trust management companies in the Malaysiafinancial market without any barriers.