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Benign negative rating actions in 1H 2019

Published on 28 Aug 2019.

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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. 

 

Analytical contact
Hazel Dashini
(603) 3385 2540
hazel@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad



Publication Date Published Category
1H 2019 Corporate Default and Rating Transition 28-Aug-2019 Default Study View PDF

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