Rating drift likely to remain negative, says RAM Ratings

KUCHING: A review of RAM Ratings’ rated portfolio in conjunction with our first half ( 1H) of 2016 default and rating-transition study shows the continuation of a negative bias in our rating actions.

Indicators tracking the rating movements remained in negative territory amid the raft of economic headwinds on both the domestic and global fronts.

There were three downgrades but no upgrade in the 1H of 2016 as opposed to two downgrades and two upgrades seen the year before.

Nevertheless, the severity of rating downgrades has moderated to an average 1.7 notches from 3.3 notches in 1H 2015, as some issuers’ ratings had already transitioned downwards in the previous few quarters.

On a more positive note, no rated issuer defaulted in 1H 2016 while 85 per cent of our rated portfolio carried at least AA ratings, highlighting the credit quality of the outstanding bond issues.

"Going forward, we expect the overall credit quality of RAM’s rated portfolio to remain fairly resilient despite the challenging environment, although downside risks will still persist through second half ( 2H) 2016," it said.

"After a muted start to the year, the Malaysian corporate bond market performed within expectations in 1H16, reaching a total gross issuance value of RM38.5 billion against RM31.9 billion seen in 1H15."

During this period, RAM rated 18 bond facilities amounting to RM47.3 billion from 14 issuers, mainly comprising financial institutions and infrastructure companies.

"For the full year, corporate bond issuance is projected to remain around RM75 billion to RM85 billion, underpinned by the funding needs of national infrastructure projects and budgeted commitments, as well as other public- private partnership projects."