Please Note
We brought you to this page based on your search query. If this isn't what you are looking for, you can continue to Search Results for ""
The maximum number of items you can export is 3,000. Please reduce your list by using the filtering tool to the left.
Close
Close
Email Research
Recipient email addresses will not be used in mailing lists or redistributed.
Recipient's
Email

Use semicolon to separate each address, limit to 20 addresses.
Enter the
characters you see
Close
Email Research
Thank you for your interest in sharing Moody's Research. You have reached the daily limit of Research email sharings.
Close
Thank you!
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Rating Action:

Moody's affirms Malaysia's A3 rating; stable outlook

Global Credit Research - 07 Dec 2017

Singapore, December 07, 2017 -- Moody's Investors Service ("Moody's") has today affirmed the Government of Malaysia's local and foreign currency issuer and senior unsecured bond ratings at A3. The outlook is maintained at stable.

The key drivers underpinning the A3 rating and stable outlook are:

1. Moody's expectation that the government's debt burden will remain high but broadly stable

2. The relatively high exposure of the economy and financial system to a tightening in external financing, as reflected in low reserve coverage of external payments, although balanced by several mitigating features

3. Malaysia's healthy and resilient growth prospects

Moody's has also affirmed the A3 senior unsecured ratings to the US dollar trust certificates issued by Malaysia Sovereign Sukuk Berhad and Malaysia Sukuk Global Berhad, special purpose vehicles established by the Government of Malaysia. These trust certificates are considered direct obligations of the Malaysian government and their ratings automatically reflect changes to Malaysia's sovereign rating.

Moody's has also affirmed the instrument ratings on senior unsecured debt issued by Khazanah Nasional Berhad at A3. The Malaysian government guarantees these instruments.

Malaysia's long-term foreign currency (FC) bond ceiling is unchanged at A1 and its long-term FC deposit ceiling is A3. Malaysia's short-term FC bond and deposit ceilings are also unchanged at P-1 and P-2 respectively. These ceilings act as a cap on ratings that can be assigned to the FC obligations of entities other than the government that are domiciled in the country.

The long-term local currency (LC) bond and deposit country ceilings are unchanged at A1.

RATINGS RATIONALE

FIRST DRIVER -- Government debt burden will remain high but broadly stable

At 50.9% of GDP as of June 2017, Malaysia's general government debt is significantly higher than the A-rated peer median (40.5% of GDP at end-2016). While we expect the debt ratio to remain stable in the next few years, it is also likely to stay above the median for A-rated sovereigns.

The government's commitment to fiscal consolidation has resulted in fiscal deficits narrowing in each of the past seven consecutive years. While the pace of consolidation will slow going forward, we still expect the deficit to narrow slightly further to 2.8% of GDP in 2018 in line with the budget projections, from 3.0% in 2017 and 6.7% in 2010. Deficit reduction has been achieved mainly through tighter spending and the introduction of a Goods and Service Tax in 2015. However, absent further meaningful revenue-raising measures, additional fiscal consolidation will be limited.

In Moody's view, achievement of the government's goal of a balanced budget will thus rest primarily on an expansion in growth, rather than any structural budgetary measures. We do not expect this objective to be achieved by the government's original target of 2020.

Policy space and debt affordability are constrained by a much narrower revenue base than available to other A-rated sovereigns. Indeed, according to the government's budgeted estimates, revenues will decline as a proportion of GDP, to 16.6% in 2018 from 16.8% in 2017, a continuation of the trend seen since a recent peak in 2012 (when revenues stood at 21.4% of GDP) which was in part due to exposure to oil price trends. As a result, debt affordability is weak relative to peers, with interest payments accounting for 12.5% of revenues in 2016, much higher than the A-rated median of 5.6%.

A key mitigating factor is the low proportion of foreign-currency denominated government debt, which reduces vulnerability of the government's debt servicing costs and debt burden to exchange rate depreciations. At end 2016, only 3.6% of Malaysia's direct government debt was denominated in foreign currency. Moreover, a significant proportion of domestic, local-currency debt is held by large investors with stable demand for government securities such as the Employees Provident Fund and the civil servant pension fund.

SECOND DRIVER - High exposure of the economy and financial system to a tightening in the availability and cost of external financing

The active nonresident investor presence in Malaysia's financial markets leaves it vulnerable to sudden swings in capital flows. Foreign currency reserves have climbed steadily from a recent trough, but remain lower than economy-wide cross-border debt due over the next year. Foreign reserves are larger than short-term debt by original maturity. However, once currently maturing medium- and long-term debt is added, the ratio of annual external liabilities due to reserves -- as measured by our external vulnerability indicator (EVI) -- has been significantly above the 100% threshold for many years. We forecast it at 139.7% for 2018 and do not expect it to change significantly in the next few years.

There are several mitigating features against these external vulnerabilities. A sizeable surplus on the net international investment position acts as a cushion. A large domestic institutional investor base also provides supportive demand, at least for local currency debt, should foreign investors' appetite for Malaysian assets diminish. Resident banks and corporates hold three-quarters of Malaysia's external assets ($297.6 billion, as at end-3Q 2017). These can be drawn upon to meet their external debt obligations ($155.7 billion as at end-3Q 2017), without creating a claim on official reserves. The current account is also in surplus position and is expected to remain so, although it has narrowed to 2.8% for the first three quarters of 2017, from a peak of 16.6% of GDP in 2008 and provides less of a cushion than in the past.

THIRD DRIVER -- Healthy and resilient growth prospects

Malaysia has a highly diversified and competitive economic structure. Between 2012-21, we expect GDP growth to average 5.1%, making Malaysia one of the fastest growing A-rated sovereigns, surpassed only by China, Ireland, and on par with Malta.

Growth's resilience through external headwinds, such as the fall in commodity prices and oil prices and a tumultuous political climate, is a testament to the economy's shock absorption capacity.

Material domestic imbalances continue to pose a risk to growth and the financial system. Household debt has moderated to 84.6% of GDP at the end of September 2017 down from 88.3% of GDP as of end 2016, but is still amongst the highest in the region. Such debt could slow growth in the medium term if it constrains households' capacity and willingness to spend. It could also amplify the negative effects of a shock to the economy. While household financial assets are over twice as large as household debt, there remain pockets of risk in some segments, particularly the low-income group.

Like several other countries in the region and beyond, Malaysia faces the challenge of meaningfully lifting productivity growth in order to sustain medium-term GDP growth and avoid the middle-income trap. However, given the relatively well-diversified nature of the economy and its ability to withstand shocks in the past, we expect that growth performance will continue to be robust relative to similarly-rated peers, which is a key factor underpinning the stability of the debt burden.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook balances long-standing credit constraints -- a high debt burden and vulnerability to external risks -- against inherent credit strengths, including resilient economic growth and the presence of sizeable domestic institutions providing stable financing conditions for the government's debt.

In the absence of further reform, we expect that the government's demonstrated commitment to fiscal consolidation will only result in limited improvement on Malaysia's public indebtedness and debt affordability. However, a robust growth path, which provides the base for an expansion in nominal GDP, lends stability to this debt burden.

While a large foreign investor presence and exposure to commodity-related exports leaves the external position vulnerable to broader shifts in interest rates and global commodity price movements, underlying mitigating factors, including Malaysia's deep domestic capital markets and strong external position, cushion the impact of such volatility.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure on the sovereign's rating could arise from (1) a material convergence in government debt levels with similarly rated peers, accompanied by improvements in debt affordability and continued fiscal deficit reduction; and (2) a reduction in external vulnerability risks, such as through a containment of the rise in short-term external debt liabilities, or through effective use of macro-prudential tools to limit volatility in capital flows durably.

Conversely, downward rating pressure could come from (1) a significant worsening in Malaysia's debt dynamics -- possibly arising from a renewed fall in commodity prices or the crystallization of contingent liabilities; (2) a deterioration in the balance of payments position or material capital flight which puts further pressure on reserves; and (3) a long-lasting negative shock to the economy, possibly amplified by high household debt levels.

GDP per capita (PPP basis, US$): 27,292 (2016 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 4.2% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 1.8% (2016 Actual)

Gen. Gov. Financial Balance/GDP: -3.1% (2016 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: 2.4% (2016 Actual) (also known as External Balance)

External debt/GDP: 74.5% (2016 Actual)

Level of economic development: Very High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 05 December 2017, a rating committee was called to discuss the rating of the Malaysia, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's fiscal or financial strength, including its debt profile, has not materially changed. The issuer's susceptibility to event risks has not materially changed.

The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Anushka Shah
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Atsi Sheth
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY’S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.