This article first appeared in Capital, The Edge Malaysia Weekly on May 26, 2025 – June 1, 2025
GOLD prices, which surged to a new all-time high of US$3,500 an ounce in April, have eased as US-China agreed on trade talks. Nevertheless, Malaysia’s sole universal broker, NewParadigm Securities Sdn Bhd is moving ahead in introducing a RM231 million gold-backed bond offering on securitised loans from pawnbrokers — the first of its kind in Asia.
The debt papers, assigned a top AAA rating by RAM Ratings, are issued by TY Consolidated Capital Bhd, a trust-owned special-purpose company incorporated to facilitate the gold-backed securitisation of pawn loans, originated by the nine subsidiaries of Ta Yoong Sdn Bhd — a second-generation family business founded in 1947 with more than 70 years in pawnbroking.
The first issuance under TY Consolidated’s RM500 million bond programme consists of RM200 million in senior bonds offered to institutional investors as well as RM31 million in junior bonds, which will be fully taken up by Ta Yoong as credit support to maintain the predetermined 15.5% over-collateralisation (OC). Serving as a credit enhancement mechanism, the junior tranche absorbs initial losses and provides a buffer for senior bondholders.
NewParadigm Securities is the sole financial adviser, principal adviser, lead arranger and lead manager for the proposed bond programme.
Danny Kwan, deputy managing director of NewParadigm, emphasises the uniqueness of the offering: “This isn’t just another securitisation — it’s a new asset class.
“Unlike conventional securitisations, which are often unsecured, such as personal loans or credit cards, the receivables backing this bond are fully collateralised by gold, which can be quickly liquidated at minimal transactional cost.”
Charanjeev Singh, managing director of NewParadigm, likens the bond structure to global credit card securitisations, where financial institutions bundle and sell credit card receivables as debt papers. Citing Moody’s Ratings, he points out the zero default rates for global credit card securitisation-type instruments worldwide in 2024 and a 0.11% default rate for broader asset-backed securities.
“The structure is based on a globally proven model. The zero-default factor in credit card securitisation stems from a defined safety mechanism. If the underlying promoter faces financial distress and is unable to generate sufficient new receivables, the structure’s OC provision comes into effect,” he explains.
“Let’s say the issuer is required to maintain 1.3 times OC consistently for three months. If this threshold is breached, it indicates that the business is failing to generate enough receivables. At that point, the structure automatically collapses, prioritising cash collection for bondholder repayment. This ensures that investors remain protected — at any given time, receivables always exceed the underlying liability.”
Under normal conditions, and if all term sheet requirements are met, the gold-backed pawn bond operates in a revolving structure — allowing for the acquisition of additional receivables from Ta Yoong, provided they meet the eligibility criteria.
To mitigate risk during portfolio underperformance, a predefined Rapid Amortisation Event (RAE) was introduced. This mechanism is triggered if the three-month moving average default rate exceeds 3%, the two-month moving average collection rate falls below 90% or the OC ratio — excluding cash balances — drops below 10% for two consecutive months. Once RAE is activated, the issuer halts new loan acquisitions and prioritises excess collections for senior bond amortisation each month.
“This forward-looking structure ensures that risk is capped and investors’ principal is protected,” Charanjeev says.
In its ratings report, RAM Ratings states that the issuance has adequate credit support to withstand an AAA-stress scenario. “Based on RAM’s cash-flow assessment, the OC ratio of 15.5% provides adequate credit support for the senior MTN (medium-term notes) to withstand stresses and sensitivities commensurate with the preliminary AAA rating,” the report notes.
The cash-flow analysis assumes defaults occur in month 10 from origination, with recovery proceeds received in month 11. For an AAA-rating scenario, calculations include a 5% base-case default rate with a 4.5 times stress multiple, a 90% loan-to-value (LTV) ratio for pawn loans and a 40% stress decline in gold prices.
RAM’s report notes that with gold prices at an all-time high, Ta Yoong’s LTV ratio averaged 65% in 2024, down from 75% over the previous five years.
This is to mitigate the risk of losses when unredeemed pledged golds are sold at values lower than the pawn loan amount plus interest.
In addition, it notes that defaults generally accounted for less than 2% of Ta Yoong’s total outstanding receivables. In 2024, the company issued around 410,000 pawn loans, amounting to RM854 million.
The rating agency also reviewed Ta Yoong’s credit underwriting procedures and gold collateral management processes, examining the steps taken in the event of borrower default, including regulated auction processes for liquidating pledged gold.
Breaking misconceptions about pawnbroking
NewParadigm Securities initially held a misconception, associating pawnbroking with money laundering or exploitative lending. “We were sceptical at first,” Charanjeev admits. “But Ta Yoong brought us in and showed us the extent of regulation and compliance in the industry — from anti-money laundering protocols to the tight oversight of KPKT (Ministry of Housing and Local Government).”
Pawnbrokers in Malaysia are licensed by KPKT and regulated under the Pawnbrokers Act 1972, which enforces stringent safeguards, including gold purity testing, insured storage and regulated auction procedures.
In addition to these requirements, pawnbrokers must conduct know-your-customer (KYC) verification, maintain detailed records of customer information and pawn transactions, and report suspicious activities to Bank Negara Malaysia.
Under KPKT regulations, pawnbrokers are permitted to charge a maximum monthly interest rate of 2%, with a loan tenure capped at six months.
Borrowers are given six months to redeem their items, followed by a three-month grace period, before an auction is initiated according to regulation — further underlining the fair treatment of borrowers.
Charanjeev also highlights the critical role of pawnbrokers in serving the unbanked population, including night market traders and small business owners, who often pawn gold for working capital. He observes that many borrowers redeem their gold within three months and frequently repeat the cycle, reflecting a structured borrowing pattern.
“The reality is that they provide essential financial support to the unbanked market,” he emphasises, noting that the process prioritises identity verification and asset authentication, without requiring credit checks or income verification. Funds are typically disbursed within 30 minutes.
With a total portfolio receivables balance of RM252.88 million, Ta Yoong’s average pawn loan size stands at RM2,168 — highlighting its extensive reach as a microfinance provider.
The highly dispersed nature of Ta Yoong’s receivables — with low average ticket sizes and no borrower concentration — adds to the security of the bond. “There’s minimal concentration risk,” says Charanjeev. “If a few borrowers default, the impact is negligible because of the wide dispersion, on top of the gold backing.”
Ta Yoong stands to benefit from raising capital at a significantly lower cost, expected to be below 5%, in line with its AAA bond rating. This rate is lower than conventional revolving credit interest rates offered by banks, which can reach up to 7% per year.
According to Charanjeev, listed pawn broker peers face double-digit cost of equity, estimated at between 12% and 15%. In contrast, Ta Yoong is securing funds through this bond programme at a cost of debt below 5%, which is also tax-deductible.
“From a business perspective, Ta Yoong’s effective capital cost could be one-third of what its listed peers are paying,” says Charanjeev, adding that this structure could enable Ta Yoong to scale further and eventually go for a public listing.
Investor interest, though still in the early stages, has been encouraging. “We’ve spoken to several institutions,” Charanjeev continues. “Initial hesitation was natural, owing to misconceptions about pawnbroking. But once we explained the securitisation model, regulatory safeguards and gold-backed structure, investors were much more comfortable.”
The first issuance is scheduled for end-June, with further tranches likely, depending on market demand and Ta Yoong’s receivables growth. Charanjeev stresses that this structure not only addresses funding challenges for pawnbrokers but also introduces a low-risk, high-security investment product into the regional capital markets.
The gold-backed pawn loan bonds have a five-year tenure. The securitisation structure includes a 48-month revolving period, during which the issuer can use net monthly collections to purchase additional receivables that meet eligibility criteria.
It then transitions into a 12-month controlled amortisation period, during which the issuer halts further purchases and directs cash collections towards meeting ongoing obligations and redeeming outstanding bonds upon maturity.
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