‘RATINGS INTACT’
1MDB debt consolidation plan has proceeded as normal, says Moody’s
MOODY’S Investors Service does not expect the government’s guarantee and letter of support for 1MDB bonds to impact the country’s credit ratings, as the debt consolidation plan has ‘proceeded as normal’.
MOODY’S Investors Service does not expect that the government’s guarantee and letter of support for 1Malaysia Development Bhd (1MDB) bonds to have an impact on the country’s credit ratings.
“As far as 1MDB is concerned, the debt consolidation plan has sort of proceeded as normal. We don’t have a rating on 1MDB so I can’t comment on that,” said Moody’s assistant vice-president Anushka Shah at the Moody’s “Inside Asean: Spotlight on Malaysia” roundtable, here, yesterday.
“What we do look at is the stock of guaranteed debt and the implications on the sovereign. As of now, there is one bond outstanding by 1MDB that is guaranteed by the government and there is also another bond that has a letter of support from the government.
“Those are the risks that we would take into consideration but at this point, the probability of debt crystallisation is low so we do not view it as a risk to the sovereign’s fiscal strength.”
Anushka said the letter of guarantee is in support of a 1MDB bond amounting to RM5 billion, while the letter of support is for another 1MDB bond amounting to US$1.75 billion (RM6.9 billion).
She said although Malaysia’s debt to gross domestic product is relatively high at 51 per cent versus the average of 41 per cent, it is still manageable as 97 per cent of the debt is in local currency.
“To a certain extent, Malaysia does have a fundamental credit constraint but since 97 per cent of its debt is in local currency, this has become a mitigation factor for a potential credit or a currency shock,” she said.
Bank Negara Malaysia’s large foreign reserves are also a mitigation factor, said Anushka.
“The international reserves of US$103.7 billion are sufficient to finance 7.2 months of retained imports and are 1.1 times the short-term external debt. At these levels, we view the international reserves as a source of stability.”
Malaysia’s current credit rating of “A3 stable” is supported by its large and diversified economy, ample natural resources and robust medium-term growth prospects.
“The outlook is very much positive for Malaysia this year as we see it as the fastest-growing sovereign in this part of the world, and these features support the credit profile and assessment.
“We are aware there are several downside risks such as growth stalls, especially in exports because of protectionism measures, the country’s debt and external issues which are beyond its control. But other than that, the outlook is positive,” she added.