KUALA LUMPUR (March 3): RAM Ratings said today that negative rating actions dominated in 2020 amid the Covid-19 pandemic and the negative bias in rating actions is expected to remain through the next few quarters, but overall credit quality is still resilient.

The rating agency said in a statement, the overarching theme of rating actions was negative last year as the various lockdowns started to strain some issuers' finances.

In total (counting downgrades and outlook revisions), it took negative rating actions on 17 issuers (9.5% of RAM's rated portfolio) in 2020.

"Of these, the ratings of six issuers were downgraded (2019: three) as opposed to four upgrades (2.2% of rated portfolio)," it said.

At the same time, it said, the number of issuers on negative outlook climbed up to 7.8%, from 0.6% in 2019.

According to RAM, issuers affected by negative rating actions included those from the tourism/hospitality and travel/aviation sectors, which have been hard hit by movement restrictions.

"Following these negative actions, the rating drift (defined as upgrades net of downgrades and defaults) ended 2020 in negative territory. There were, however, no defaults during the year," it said.

RAM expects the negative bias in rating actions to remain through the next few quarters, as 14 RAM-rated entities still carried a negative outlook as at end-December 2020.

"That said, we expect the overall rated credits to withstand near-term pressure because over 80% of our portfolio is anchored by financial institutions and project finance companies with strong capitalisation, robust liquidity buffers and healthy cash flows," it said.

Overall, the domestic corporate bond market kept up its momentum in 2020, with RM104.6 billion of gross bond/sukuk issuance — at par with the preceding year's RM105.3 billion, underpinned by higher government allocation for big-ticket infrastructure projects and record low interest rates.

The bond/sukuk pipeline spiked up in the fourth quarter of 2020 (4Q20) as companies took the opportunity to refinance or lock in cheap funding, it said.

In view of Movement Control Order 2.0 (MCO 2.0), RAM is currently undertaking another portfolio-wide assessment which will be released soon.

"The preliminary results indicate limited near-term rating pressure on our portfolio," it said.

RAM's broader analysis of corporates in ASEAN-6 (ASEAN-5 + Vietnam) also revealed that Malaysian firms have stronger debt protection metrics than their ASEAN peers.

"Although half of the companies listed on Bursa Malaysia still reported weaker earnings in 3Q20 (-0.8% year-on-year compared with -33% in 2Q20), their debt protection metrics remained intact," it said.

For 3Q20, it said, the median gearing ratio averaged 0.22 times (ASEAN: 0.38 times) while debt servicing capacity — measured by the pre-tax earnings-to-debt ratio — averaged 0.34 times (ASEAN-6: 0.23 times).

"The average Malaysian firm had enough cash to support 3.5 months' operating expenses. Relative to RAM's benchmarks and ASEAN peers, these metrics are not considered aggressive.

"Moreover, recent sample data for 4Q20 results indicate improvements in these measures for both Malaysia and ASEAN-6," it said.

RAM also highlighted that the path to full recovery will remain uneven and fragile in 2021, depending much on the success of the country's vaccination programme and the global outlook.

"Swift execution of the inoculation regime and no further outbreaks may lend upside to Malaysia's economic recovery and RAM's GDP (gross domestic product) growth forecast, which currently stands at 5% for this year," it said.