Published on 28 Aug 2019.
Corporate bonds and sukuk issued from January to June 2019 increased 41% to RM78.4 bil (1H 2018: RM55.7 bil; 2018: RM105.4 bil), buoyed by a one-off RM27.6 bil issue from Urusharta Jamaah Sdn Bhd, a government special-purpose vehicle set up to take over Lembaga Tabung Haji’s underperforming assets. Excluding this issue, 1H 2019 issuance of RM50.9 bil was slightly below y-o-y amid greater uncertainties due to the US-China trade war, slowing growth prospects and anticipation of interest rate cuts. Rated bonds constituted nearly 50% of this net amount, 94% of which carried RAM ratings. Half of these bonds originated from financial institutions while the diversified holdings sector accounted for another 20%.
“Notwithstanding the more challenging economic landscape, RAM’s rating actions were more benign in 1H 2019, as most of the downgrades had already been effected in 2018. Count-wise, two issuers were downgraded and two upgraded in 1H 2019, translating into a downgrade-to-upgrade ratio of 1.00 time (end-2018: 2.25 times). Consequently, the net rating action or rating drift has since inched closer to neutral territory,” says Julie Ng, RAM’s Head of Data Analytics. For the remaining of 2019, overall rating drift could improve further, based on significantly fewer issuers with a negative outlook as at end-June 2019 (6 issuers versus 14 at end-2018).
About 83% and 93% of RAM’s outstanding portfolio carried at least AA ratings and a stable outlook, respectively, with financial metrics that afford these companies strong headroom against potential credit deterioration. “In addition, our analysis of the broader corporate landscape suggests that despite slower earnings accretion and higher leverage in recent quarters, Malaysian corporate credit health remains resilient against economic headwinds. As at 1Q 2019, the median debt servicing capacity of listed corporates was 0.24 times (1Q 2018: 0.31 times), a level we consider as above average,” adds Ng.
For 2019, RAM projects GDP growth of 4.6%, anchored by domestic consumption but factoring in downside risks stemming from the external front. Corporate bond issuance is expected to reach RM90 bil-RM100 bil.
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