KUALA LUMPUR (April 19): Moody's Investors Service has assigned a senior unsecured rating of A3 to the proposed US dollar-denominated trust certificates (sukuks) with maturities of 10 and 30 years to be issued by Malaysia Wakala Sukuk Bhd, a special purpose vehicle established by the Malaysian government.
In a statement today, Moody’s said the A3 rating assigned to the sukuks are at the same level as the long-term local-currency and foreign-currency issuer ratings of the Malaysian government, as the sukuk holders will effectively be exposed to the Malaysian government's senior unsecured credit risk, will not be exposed to the risk of performance of the portfolio assets relating to the certificates, will not have any preferential claim or recourse over the trust assets as certificate holders cannot sell or dispose of any trust assets except as expressly provided for under the transaction documents, and only have rights against the Malaysian government, ranking pari passu with other senior unsecured obligations as provided in the transaction documents.
It said legal opinions have also confirmed legal, binding and enforceable obligations for the Malaysian government.
The proceeds of the sukuks will be used by the issuer to purchase a Wakala asset pool consisting of vouchers representing travel entitlements on selected public transport in Malaysia.
The assets will be managed by the government 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 all returns on the portfolio assets against the relevant periodic distribution amounts due.
Moody's also noted that its sukuk ratings do not express an opinion on the structure's compliance with Shariah law.
The rating agency said Malaysia's A3 rating is underpinned by its diversified, competitive and moderately large economy, strong medium-term growth potential compared with peers, and ample natural resources.
It said credible and effective macroeconomic policymaking institutions also foster stability and support the country's economic resiliency.
These conditions have generated a large pool of domestic savings over time, which anchors interest payments for the government and reduces its liquidity risk and reliance on external financing.
Balanced against these credit strengths are the government's narrow revenue base that limits fiscal flexibility and its relatively high debt burden and weak debt affordability compared with its peers.
Moody’s said political noise also has the potential to distract the government from its policy priorities, particularly longer-term reforms that may strengthen the credit profile over time.
A change in Malaysia's sovereign rating will be automatically reflected in the trust certificate ratings of the issuer.
Moody’s said downward pressure on the rating would stem from a further weakening in the government's debt and debt affordability metrics, a sharp rise in contingent liabilities, and/or a softening of the commitment to medium-term fiscal consolidation that were to result in continued deterioration in the government's fiscal strength.
“Volatile politics that undermined the credibility and effectiveness of institutions and threatened the stability of capital flows would also be credit negative.
“In the context of the longer-term uncertainty over global trade patterns and supply chains, weaker medium-term growth prospects, including through structurally lower investment, would additionally put downward pressure on the rating,” it said.