Determinants contributing to the primary market spread of securitization in Malaysia

• Main Authors: Seng, Ngau Duo, Bakri, Mohammed Hariri, Al-Shami, Samer Ali Hussein, Abdul Hamid, Baharom, Zainal, Nurazilah
• Format: Article
• Language: English
• Published: International Journal Of Innovation, Creativity And Change 2020
• Online Access: http://eprints.utem.edu.my/id/eprint/24148/2/NGAU%20DUO%20SENG.PDF; http://eprints.utem.edu.my/id/eprint/24148/; https://www.ijicc.net/images/vol11iss12/111208_Seng_2020_E_R.pdf

During the year 1997, the Asian financial crisis disclosed the inherent weaknesses of the financial market in Asia. Organisations had an over-dependence to the banks as the primary sources of fund is one of the reasons why companies faced difficulty during the financial crisis. One of the factors that contributed to the financial crisis was that organizations failed to diversify their financing structure. It is to be noted that when organisations want to source for funds, they can either issue stocks, bonds or finance from banks locally or globally. Source capital from equity and borrowing through debt is considered difficult, expensive and will distort the financial leverage of the company. The development of securitization allows the organization to smooth up their cash flow by converting the illiquid assets into a liquid asset through a special purpose vehicle (SPV). SPV is a legally separated entity from the company or the holder of the assets. SPV can take the forms of either a trust, corporation or partnership set up just for the purchasing of the originator's assets. There are many literature pieces of research that regard the factors that contribute to the pricing of corporate bonds but there are few empirical studies on the determinants on securitization in Malaysia. In view of the increases of awareness of securitization, this paper intends to investigate the determinants contribute to the primary market spread of securitization in Malaysia. The primary market rate is the initial or first-time offer rate by the originator and issued by the SPV. The rate offered by the SPV is based on the underlying lease payment form the originator collection. This research applied regression analysis for the period from 2004 to 2014. The regression results show that three variables have negative and one positive relationship with the primary market spread. Thus, it can conclude that selective variables can act as an important influence to the primary market spread in helping the originators setting the competitive prices in securitization.