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Fitch ‘more than 50% likely’ to downgrade M’sia on 1MDB, from A- to BBB. Please wakeup Sir @NajibRazak !

March 18, 2015

Malaysia’s credit rating is “more than 50% likely” to be downgraded as its trade balance worsens and a state investment company struggles to meets its debt obligations, FitchRatings said.

The Southeast Asian nation would “sit more naturally in the BBB range,” Andrew Colquhoun, head of Asia Pacific sovereign ratings, said in an interview in Singapore Wednesday. Malaysia is rated A- by Fitch, the fourth-lowest investment grade, and two steps above BBB. The ringgit erased gains.

A deteriorating current-account surplus exposes Malaysia to volatility in investor sentiment, and Fitchwill review the country next quarter, Colquhoun said. Developments surrounding 1Malaysia Development Bhd (1MDB), whose advisory board is headed by Prime Minister Najib Abdul Razak, and which has been forced to dismantle its assets amid surging debts, is a “country demonstration of what weaker governance means,” he said.

The ringgit fell 0.2% to 3.7020 a dollar as of 12:15 p.m. Wednesday in Kuala Lumpur, data compiled by Bloomberg show. The currency earlier rose as much as 0.24%. One-month non-deliverable forwards fell 0.2% to 3.7132 after climbing as high as 3.6984.

“The Fitch comments saw the ringgit giving up some of its gains,” said Khoon Goh, a Singapore-based strategist at Australia and New Zealand Banking Group Ltd. “There is a risk of a rating cut, but it’s hard to say whether this has been priced in or not.”

Negative outlook

Fitch assigned a negative outlook to Malaysia’s rating in July 2013, and affirmed the stance a year later, as the excess in the nation’s broadest measure of trade narrowed amid a surge in imports following Najib’s US$444 billion (RM1.6 billion) push to boost infrastructure in this decade. The current-account surplus shrank to RM6.1 billion in the fourth quarter, the least since June 2013. Exports contracted in January for only the second time since 2013.

1MDBPlunging crude prices prompted the government to raise this year’s fiscal-deficit target and cut the economic growth forecast as a drop in earnings hurts Asia’s only major oil exporter.

The existence of entities like 1MDB and the rise in the amount of debt of state-owned entities that’s guaranteed by the government “discount the support that we give to the credit from the consolidation of public finances,” Colquhoun said. “The current-account surplus is narrowing. It may well tip into a deficit this year depending on how the decline in oil prices feeds through.”

– by Lilian Karunungan

Ringgit forwards drop as Fitch warns on credit rating

ringgit-malaysia-generic-8.0Ringgit forwards fell as Fitch Ratings said Malaysia’s credit ranking sits “more naturally” in the BBB range, suggesting a possible downgrade.

A deterioration in the current account surplus exposes Malaysia to volatility in investor sentiment and Fitch would review the country in the second quarter, Andrew Colquhoun, the company’s head of Asia-Pacific sovereign ratings, said in an interview on Wednesday in Singapore.

The nation is currently rated A-, the fourth-lowest investment grade, and two levels above BBB. There’s more than a 50% likelihood of a rating cut, Colquhoun said.

One-month non-deliverable forwards for the ringgit declined 0.19% to 3.7115 a US dollar as at 11.53am in Kuala Lumpur, after earlier rising as much as 0.17%. The spot rate dropped 0.1% to 3.7005 after gaining 0.24%.

“The Fitch comments saw the ringgit giving up some of its gains,” said Khoon Goh, a Singapore-based strategist at Australia and New Zealand Banking Group Ltd. “There is a risk of a rating cut, but it’s hard to say whether this has been priced in or not.”

Plunging crude prices prompted the government to raise this year’s fiscal deficit target and cut the economic growth forecast as a drop in earnings hurts Asia’s only major oil exporter.

The ringgit fell 13% against the US dollar in the past six months, Asia’s biggest loss, and sentiment has been worsened by concern that state investment company 1Malaysia Development Bhd (1MDB) will struggle to meets its debt obligations.

1MDB

1MDB1MDB has drawn criticism from lawmakers because of its rising borrowing, with debt totalling RM41.9 billion as of March 2014.

It repaid a US$563 million (RM2.1 billion) overdue loan in February, after rescheduling the payment, and the government this month provided the company with a US$257 million standby credit facility.

A BBB rating might be more suitable for Malaysia due to its level of income and development, and the nation scores weaker in terms of governance among its peers, Fitch’s Colquhoun said.

1MDB is a country demonstration of what weak governance means, he said. Fitch had said in January that 1MDB was a “contingent liability” on the sovereign.

Fitch said in the Jan 20 statement that it’s “more likely than not” to downgrade Malaysia’s rating, with the nation’s dependence on commodities a key credit weakness.

Brent crude has more than halved since June to US$53.23 a barrel.

Malaysia’s current account surplus shrank to RM6.1 billion in the fourth quarter, the least since June 2013. Exports contracted in January for only the second time since 2013 and the government raised its 2015 fiscal deficit target to 3.2% of gross domestic product from 3%.

Bond plan

Malaysia is planning to tap the global bond market with an issue of as much US$2 billion of Islamic debt and has hired banks to arrange the sale.

The yield on the nation’s existing US dollar-denominated sukuk due in 2021 rose two basis points Wednesday to 3.08%. 10-year local-currency notes were steady at 3.93%, data compiled by Bloomberg show.

The cost of insuring Malaysia’s sovereign debt for five years using credit default swaps has dropped to 138 from a four-month high of 151 in January, CMA prices show. That’s up from the five-year average of 101.

– by Liau Y-Sing

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2 Comments leave one →
  1. najib manaukau permalink
    March 19, 2015 1:38 am

    The downgrade is not going to worry Najib or all those at UMNO, to them whatever position Malaysia is in now is due to their incompetence and corruptions. Any call to mend their ways is only an admission of what they have done thus far are wrong.
    That will never happen, also now that MCA is no longer of any importance to their survival in the positions as the ruling party they are prepare to call for MCA to serve their ties with Umno.
    They wouldn’t dare to do that when MC position as a member of the coalition partners was badly needed. Of course it is just like when an Umno was saying proudly that Umno can be the ruling party without any other partners. I hope this call will tell MCA what their true worth and position are within the coalition and I hope that will alert the other partners positions are in, they are just running dogs as long as they are of some use or there to keep Umno in Putrajaya. Time for all those junior partners to wake up to the real reason why they are needed in the coalition. Time to leave and let Umno try to be the ‘ruling’ party to Umno without the running dogs , just remember what will happen to them one day. This is Umno especially to all the half breeds, after all they have nothing to loose they are not true Malays and thus have nothing to loose without Umno !

  2. najib manaukau permalink
    March 19, 2015 5:27 am

    This is what you get from having Umno in Putrajaya and most of all having a bunch of Umno schmucks to run the country. Most of the policies the repugnant & avaricious Mahthir implemented are now beginning to bear fruits.
    MCA and DAP are beginning to get very worry that their limbs may not be able to hang onto their bodies for very much longer if they have hudud laws around one day in Malaysia. Hence the threat to severe ties with their long time ‘buddies’ !

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