Malaysia's investment rating could have plummeted and foreign investors would have been deterred from purchasing genuine Malaysian bonds if the Perbadanan Usahawan Nasional Berhad (PUNB) RM19 billion bond scam had not been unearthed earlier.

A bond market analyst told malaysiakini that the implication from the scam, had it not been exposed earlier, could have reverberated in the international arena, discrediting any future bond sales.

The analyst, who requested anonymity, said the damage was averted as the unauthorised PUNB bond was not sold overseas.

The bond, dated Oct 13, 2000, has a 10-year maturity date and carried the signatures of the chief executive officer and secretary of PUNB. PUNB is a company set up in 1991 under the government's policy to encourage Malay entrepreneurs.

"It is highly unlikely the perpetrators in PUNB could have sold the bond. In that case, there will not be much effect on our future bond market," he said.

He added that in general foreign buyers will be very careful in purchasing any bonds.

'They will inquire with the relevant authorities, especially with Bank Negara, before making such decisions. Based on what has been revealed thus far, it's clear it is the work of only a certain group of people within PUNB," he said.

Another analyst also said that no one will buy bonds that are not properly authorised.

"It is a basic mistake by those trying to sell the bond to do so without getting authorisation," he added.

"They must be small-timers and I doubt their failed attempt to make money will have much international impact," he said.

ACA probe

The Anti-Corruption Agency began investigations into the PUNB scandal last month following information that it had issued a US$5 billion bond without the approval of the Finance Ministry. It was reported that at least three top executives could be involved in the case.

ACA director-general Ahmad Zaki Husin was reported as saying on Monday that the agency was in the final stages of its probe into the scam.

He said that ACA was in the process of tying certain loose ends and the investigation papers will be handed over to the Attorney-General's Chambers this week. The case was classified as abuse of power, an offence under section 15 of the Anti-Corruption Act 1997.

In its investigations, the ACA had questioned eight people, including a PUNB senior executive. It was also reported last week that a top PUNB executive was arrested at the KL International Airport when he returned from London.

ACA officials have also spoken to various people in Singapore and the UK regarding this matter and has seized the bond certificates, which were sent to a British broker in London.

Ahmad Zaki was also reported as saying that the agency's quick action has averted the possibility of huge losses to the government and PUNB arising from the bond issue.

He said "people in authority" in the company had issued bonds without authority from company directors, the Bank Negara or the Finance Ministry

A form of loan

Bonds work in the same manner as IOUs in that they act as a record of a loan from somebody and the bond certificate shows the deadline for paying back the loan along with the interest that has to be paid.

The Malaysian bond market comprises government bonds and corporate bonds.

The government bonds were initially issued to meet the investment needs and fund the budget deficit of the government. Later, bonds were issued to raise funds for financing public sector developmental expenditure.

The main types of government bonds being traded are Malaysian Treasury Bills, Bank Negara Bills, Malaysian Government Securities and Government Investment Certificates.

Corporate bonds are debt instruments issued by corporations to raise capital. They are issued with a definite and final maturity period, and a stated payment of interest to investors.

The bonds are privately placed with investment institutions and traded on the secondary market by finance companies and discount houses. Government bonds and corporate bonds are normally traded by institutions and in large amounts.

Stable income

Bonds are popular with investors as they provide stable income flow and also opportunities for capital gains. Bonds present a good balance for those too cautious to invest heavily in the share market but wishing more returns than just keeping their money in the bank.

Some bond certificates have detachable coupons representing a scheduled interest payment. The holder of this certificate, called bearer bonds, will have to detach coupons at the appropriate time to be sent to the bond issuer to receive interest.

A bearer bond is a paper certificate of ownership and is very easily transferable and cashable as it can be redeemed by whoever holds it.

At present most bonds are registered in the holder's name and have no coupons. The issuer automatically sends the interest payments to the holder registered in an electronic database.