It is a sukuk (or islamic bond), so it is about how much the yield it can be.
It is not a ordinary stock with dividend.


The rate is not attractive, that at 3.x% little different with FD. My pov at current situation.

Unless the sukuk bond price goes down (which highly unlikely for current situation), that make the yield higher, only then it is attractive.

This post has been edited by cherroy: Jan 8 2013, 11:08 AM

At the moment,
bond is highly after worldwide (that's why we see bond funds generally have good performance across last few years), aka bonds are having good time across the global, there is high demand for bond, so for high quality bond or Sukuk, generally we won't see very high yield across.

3.x% ~ 4.x% pa rate for a medium to long term tenure, so how can it be said a too good to be true?

It is not about extension, it is about its yield.

FD rate now is 3.x% for 1 year, as retailer why one want to opt a sukuk/bond that yield is almost the same with FD?
(bare in mind buy/sell need to incur commission charges which can be range from 0.1*% ~ 0.42%, I assumed it may be traded like ordinary stocks and incurred the same commission if one incurred 0.4% at 3.7%, net yield is only 3.3%)
(If incurred both way buy & sell, then 0.4% x 2, like that lower than FD, it doesn't make sense for retailers already)

It needs to provide better yield like at least around 1% higher than any FD can be offered out there.

You need to take in transaction cost, if buy and sell incurred 0.4% (as same with trading share), means 0.8% gone.
4.58% - 0.8% means 3.78% only.

There is no reason to invest into a 3.78% bond when FD also can get this rate.

There is little upside for bond except if interest going down.
Bond is not as same as equities.
When mature, it returns you the face value only.
So bond final worth is fixed already, whether the price can go up or not depended on interest rate difference between FD and bond.

You can't treat a bond as same as equities aka hope the price of bond can fly as equities when IPO listing time.

1)&2) Bond always being redeemed at face value, disregard the market price.

3) Yes, but market generally taking into account already, the bond won't be traded at Rm90, if it is going to be matured tomorrow.
Who is the water fish to sell at Rm90, when tomorrow can get Rm100?
Unless there is a risk of default.


Single tier system already in place many years back.

Old imputation dividend system is going to be obsolete next year. In other word, start next year, all dividend is under single tier.
Those tax credit under old imputation system will be obsoleted.

The question actually is not right.
But to answer, new or old gov doesn't run away from the obligation, disregard which political party form the gov.

If change gov, already mean don't need to pay bond, then in US, they were changing periodically from Republican to Democrat means don't need to pay the bond already?

The more correct scenario is

Danainfra is a company that owned by MoF. (Danainfra Nasional Berhad)
So the bond is redeemed by the company.

It is not a gov sovereign bond, but a company owned by MoF (aka gov).
This is the difference.

Although

Single tier tax on corporate level.
The dividend already taxed in the first place.
The amount received in net.

Tax credit cannot be used by the company to pay tax exempted dividend.
Tax credit is used upon on the receiver of the dividend that enable receiver of dividend to claim back (if there is discrepancy of rate in between).

Dividend that exemption from tax, it is called tax exempted dividend, not single tier.

PIDM is Rm250K.

PIDM is government agency that run an insurance scheme whereby banks do pay insurance premium in order depositor holders get RM250k guaranteed protection from the insurance.

While sukuk guaranteed by gov, is a bond that guaranteed by gov without any insurance scheme in place like PIDM.

So their structure is different, although both are tightly related to gov.

Bank deposit safe or not, has 2 layer protection.
1. First layer protection. The bank financial sound, and has adequate capital to meet the liabilities, then your deposit is safe, disregard the PIDM or gov defaulting.
As even gov default their bond, if bank is financial sound, your deposit is still safe.

2. Second layer,PIDM protection only need to be activated if the bank defaulted.

For, sukuk/bond
1. Ability of issuing company to repay.
2. Gov fulfill the obligation of guarantee (if it is guaranteed by gov)

So both have distinct difference.

As you can have a scenario that gov defaulted, while bank still sound, means deposit still safe.
While if gov has financial problem, the those bond guaranteed by gov, may have a risk being defaulted, if can't be redeemed by the issuing company.

Gov can default, if financial situation really turn really really bad time.
So I do not think, it is a right word to use "perfect safe" instrument even though it is gov owed/guaranteed. Although it is unlikely to happen is most of time. there were a few gov did default before.

Also I do not think it is right to group together FD and Sukuk/bond guaranteed by gov, they do have distinct difference.

Yes, the sukuk is quite safe, but cannot say it is as safe as FD or same as FD. They are different.

This post has been edited by cherroy: Nov 2 2013, 03:52 PM

Every 6 months, you get payment for the interest, disregard bond market price out there for the bond.

Whether one able to make a profit from the bond or not, it depends on the market price then.
A bond IPO at Rm1.00, can be traded at Rm1.02 or Rm0.98 as well, largely depends on interest rate environment out there.

It is not "risk free".

As in today world, even sovereign bond is not considered "risk free".

Yes, if one doesn't mind to have 4.58% pa. for the rest of year until next decade or so then it is an option.



This post has been edited by cherroy: Nov 19 2013, 08:33 PM

My view, it should open at IPO price. There is no reason for bond to rise up above its face value especially for a long term bond, especially for retailers.

Buyer sure got one, just the price of it only.
Most bonds in the market have buyer that always ready to buy, just matter of the price of it.

If sell at 0.90, I don't mind to have it. So I am another ready always available buyer.

Who want to buy above 1~2% of its face value?

At Rm1.00, 2% premium means Rm1.02.
But when it matures time, it pay you back only Rm1.00.
So Rm0.02 potential loss.

Somemore, broker commission charge incurred for transaction made in the market.
If one with 0.42%, means another cost incurred.

That's why there is little transaction going on, unless someone willing to sell at good discount.

Risk free = 0% default.

So above statement is not something good to educate investors especially newbie in the investment field.
A better word is highly safe, but not risk free.

As for the long term future, who know what can happen on gov financial capabilities.
As gov need to be financial sound and capable to honour those guaranteed made.

Even sovereign bond still rated at A-, not AAA.

As in today world, there were sovereign bond being defaulted in the record.

Reit is subjected to property market risk as well as refinancing risk.

Bond is not. As long as issuer is financially sound, then expect the bond being redeemed at face value.

Reit can go burst if property slump. There were overseas reit went burst during 2008 crisis time.
So reit should have higher yield than bond to justify the risk taken.

What would anyone buy at 102?

At 100, the yield until mature is 4.58% (without taking into of broker commission yet).
Somemore at 1.02, yield become only 4.49% (not yet taking into account of commission + 2 cents loss until maturity).

Wah, shark goreng a bond?

A water fish shark?

Generally, it can trade above its face value, when the payment of interest is near time.
Aka buyer can instant get the interest payment once bought, while seller doesn't.

The disadvantage of this bond is lack of liquidity.
Not easy to "lari". except at good discount.

Locally market, retail bond market still lack of liquidity, sadly to say.
If got good liquidity, it can be a good alternative place for some fund "parking" diversification for retailers.

For me, 4.23% is not attractive when there is 4.25% FD rate out there.