Friday 29 Mar 2024
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KUALA LUMPUR (Sept 17):  Malaysia's corporate bond market is expected to remain muted this year, RAM Rating Services Bhd said, with gross private debt securities (PDS) issuance expected to fall in the range of RM75 billion-RM85 billion.

The rating agency is forecasting a gross domestic product (GDP) growth of 4.9% for 2015.

"The challenges and uncertainties, both domestic and external, will also have a substantial bearing on the private sector’s investment decisions, especially funding plans," said RAM in a statement today.

"That said, infrastructure projects already committed to under the Economic Transformation Programme, the 11th Malaysia Plan and Budget 2015 are expected to continue," it added.

Moving forward, RAM expects the rating drift to trend south in the second half of 2015 as corporates continue facing turbulent headwinds.

It sees issuers from the plantation and agriculture, real estate and property, and automotive sectors as well as companies involved in discretionary consumer products experiencing rating pressures if the weak market conditions persist over the next 12-18 months.

However, RAM said the annual default rate among bond issuers is not envisaged to exceed 1.3%.

"We do not expect any widespread credit deterioration in RAM’s rated portfolio. Our bi-annual Corporate Default and Rating Transition Study for January-June 2015 (1H 2015) period indicates that 90% of RAM-rated issuers are highly rated (that is, AA and above) and that the majority of these are financial institutions that are well capitalised and equipped with strong funding and liquidity profiles.

"In addition, issuers from the infrastructure and utilities sector, which also forms a substantial proportion of RAM’s rated portfolio, are supported by stable project earnings and limited foreign-currency exposure," it added.

The latest study for 1H 2015 also found that no issuer had defaulted in the first six months of this year. 

"The downgrade-to-upgrade ratio weakened from 0.67 times to 1 time, as the number of upgrades had declined. As a result, the four-quarter moving-average rating drift (upgrades net of downgrades and defaults) turned south, ending at just a slightly positive level in 2Q 2015," said RAM.

RAM noted that its rating actions were more severe in 1H 2015, with companies receiving an average downgrade of 3.3 notches compared with 1.2 notches in the year-ago period, while those that were upgraded moved up an average of 1.3 notches from 1.1 notches previously.

"Reflective of the slightly more negative lean, nine entities were on negative outlook as at end-June 2015, with another five on positive. The outstanding bonds issued by the entities with a negative outlook grossed up to about RM3.4 billion as at end-August 2015. However, most of the lower-rated entities from this pool being either bank- or financial-guaranteed," it said.

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