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Rating Action:

Moody's assigns definitive A3 rating to Malaysia's sovereign sukuk

26 Apr 2016

Singapore, April 26, 2016 -- Moody's Investors Service has today assigned definitive A3 ratings to the US dollar-denominated trust certificates ("sukuk") issued by Malaysia Sukuk Global Berhad ("the Issuer"), an SPV established by the Government of Malaysia. The certificates were issued in two tranches, one maturing in 2026 and the other maturing in 2046.

RATINGS RATIONALE

Moody's definitive ratings for these debt obligations confirm the provisional ratings assigned on 11 April, 2016. Moody's rating rationale was set out in a press release published on the same day.

The A3 rating assigned to the sukuk is at the same level as the long-term local-currency and foreign-currency issuer ratings of the Government of Malaysia, as the sukuk certificate holders will (i) effectively be exposed to the Government of Malaysia's senior unsecured credit risk; (ii) not be exposed to the risk of performance of the Portfolio Assets relating to the Certificates; (iii) will not have any preferential claim or recourse over the Trust Assets. Certificate holders cannot sell or dispose any Trust assets except as expressly provided for under the Transaction documents; and (iv) only have rights against the Government of Malaysia, ranking pari passu with other senior unsecured obligations as provided in the Transaction Documents. Legal opinions have also confirmed legal, binding and enforceable obligations for the Government of Malaysia.

Per the documentation, the proceeds of the sukuk will be used by the Issuer to purchase a Wakala asset pool consisting of (i) vouchers representing travel entitlements on public transport in Malaysia; and (ii) shares issued by the Government of Malaysia conferring beneficial ownership of assets related to social and economic development in the country. The assets will be managed by the Government of Malaysia as the agent for the provision of Wakala services on behalf of the Issuer (acting as Trustee for the Certificate holders). The Government will collect income against the relevant periodic distribution amounts due.

Moody's also notes that its sukuk rating does not express an opinion on the structure's compliance with Shariah law.

In January 2016, Moody's affirmed Malaysia's sovereign bond rating at A3 and changed the outlook to stable from positive. The key drivers of the decision were 1) The deterioration in Malaysia's growth and external credit metrics due to external pressures over the past year. 2) Macro-financial risks posed by system-wide leverage, which remains high. 3) Moody's expectation that—despite progress on fiscal consolidation—Malaysia's public debt burden and debt affordability will see only limited improvement over the outlook horizon.

Over the past two years, the negative impact of changes in the external environment on Malaysia's growth, external balance and reserves constrained the positive impact of major fiscal reforms, including the implementation of a goods and services tax (GST) and the rationalization of fuel subsidies. Lower commodity prices have reduced government revenue, while undermining the country's external position, with large capital outflows, a falling current account surplus, sharp exchange rate depreciation and falling reserves.

Malaysia's credit profile is characterized by a long track record of macroeconomic stability, high growth relative to A-rated peers, and deep domestic financial markets. However, its government debt stock is higher than similarly rated peers, while high private sector debt, especially in the household sector, poses a risk to growth and the financial system.

A change in Malaysia's sovereign rating will be automatically reflected in the trust certificate ratings of the Issuer.

WHAT COULD CHANGE THE RATINGS - UP/DOWN

Moody's has aligned the senior unsecured ratings for the trust certificates with Malaysia's A3 sovereign issuer rating. Therefore, the rating on these sukuks will move in tandem with Malaysia's sovereign issuer rating.

The stable outlook on Malaysia's A3 sovereign issuer rating suggests that the upside and downside risks are balanced. Nonetheless, upward pressure on the sovereign's rating could arise from a greater convergence in government debt metrics with similarly-rated peers, accompanied by improvements in debt affordability and fiscal deficit reduction.

Conversely, a significant worsening in Malaysia's debt dynamics—possibly arising from an inability to manage the impact of lower crude oil and agricultural commodity prices—on the fiscal accounts or the crystallization of large contingent liabilities, could exert downward pressure on the rating.

The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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.

Christian de Guzman
VP - Senior Credit Officer
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
SUBSCRIBERS: (852) 3551-3077

Anne Van Praagh
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 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
SUBSCRIBERS: (852) 3551-3077

Moody's assigns definitive A3 rating to Malaysia's sovereign sukuk
No Related Data.
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