Published on 31 March 2015
RAM Ratings has released its 17th annual
corporate default and rating-transition study. The study covers the 485
Malaysian corporations and financial institutions rated by RAM between
1992 and 2014.
Last year, RAM published 54 new issue ratings with a
total programme value of RM127.7 billion; several of these have the
distinction of being landmark issues, both in Malaysia and globally. As
at end-December 2014, RAM’s outstanding portfolio was valued at RM542.5
billion (by programme value).
The key credit trends of the 2014 study are as follows:
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There was no default among the 170 issuers with outstanding debt securities during the year.
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The bulk of RAM’s portfolio (89%) comprises ratings with a stable outlook.
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Our review of issuers’ corporate credit ratings through time indicates that the financial health of RAM-rated entities (a significant portion of which constitutes large corporations) remains strong. Over time, the median ratings of companies in various non-financial sectors have strengthened to within the AA2-AA3 bands, which corresponds with RAM’s average 5-year cumulative default rate of 1.2% - a level considered as low risk.
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Nevertheless, RAM’s rating actions in 2014 had a slightly more downward bias, following the weaker performance and prospects of some segments, notably commodities. The downgrade-to-upgrade ratio went up to 0.75 last year (2013: 0.56), as the number of downgrades crept up and upgrades slowed down.
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Companies received an average downgrade of 3 notches (2013: 1 notch) while upgraded issuers were raised 1 notch higher (2013: 2 notches). This quantum is still well within the normal range.
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Issuers with a positive outlook and on rating watch increased from 2% to 4%, although issuers on a negative rating outlook also rose to 7% (summing up to 12 by count) of our portfolio, compared to 4% in 2013.
RAM expects Malaysia’s GDP to clock in at 5.3% in
2015 (2014: 6%). Despite the greater challenges and volatility posed by
external factors as well as the imposition of the GST, we expect
domestic demand to remain resilient in driving growth while monetary
policy remains accommodative. Therefore, the domestic capital markets
should still experience steady growth, with new issuance of corporate
bonds estimated at RM85 billion-95 billion this year, based on pipeline
projections.
At company level, the expected headwinds may exert
some pressure on earnings, although overall corporate health should stay
sufficiently robust to withstand potential shocks. The banking system
is also well capitalised against such risks. We do not expect any
pervasive deterioration in RAM’s portfolio, although some issuers in
certain sectors with weaker credit profiles could face heightened risks
and potential downgrades, if the domestic economy decelerates more than
expected. Given the rating distribution of RAM’s portfolio, defaults -
if any - are not likely to breach 1.2% in 2015.
Click here for report.
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