Moody's assigns definitive A3 rating for Malaysia's sovereign sukuk

KUALA LUMPUR: Moody's Investors Service has assigned a definitive foreign currency rating of A3 to the securities under Malaysia's US dollar-denominated sovereign sukuk.

In a statement Wednesday, July 6, Moody’s said the definitive rating for these debt obligations confirmed the provisional rating assigned on June 22, 2011.

It said Malaysia's wakala sukuk issuance was divided into two tranches: US$1.2 billion due 2016 and US$800,000 due 2021.

“In Moody's opinion, these payment obligations are pari passu with other senior, unsecured debt issuances of the Government of Malaysia and thus justify a rating at the same level,” it said.

Moody’s said the Malaysian economy had grown robustly during the recovery from the global financial crisis, supported notably by healthy private consumption and government stimulus.

In addition, the pickup in growth across the region and higher commodity prices have bolstered Malaysia's large export sector, it said.

Yet inflation remains relatively low and such pressures are being kept in check by central bank policy actions, it said.

“Despite headwinds from supply-chain disruptions from the March 2011 Japanese earthquake and from a moderation in Chinese demand, Malaysia's growth will continue to be supported in the near-term by domestic demand, particularly as investment spending accelerates under the government's Economic Transformation Programme,” it said.

Moody’s said Malaysia's sovereign rating was anchored by the sustained strength in the country's strong external payments position, high savings rates, and deep onshore capital markets.

Official foreign exchange reserves stand at US$133.2 billion, or more than four-times residual short-term external debt, as of June 15, 2011.

Moody’s said that in addition, the rating was supported by strong and well-managed corporate and banking sectors, which poses only marginal contingent liabilities to the government's balance sheet.

“However, structural features of the Malaysia's fiscal framework may put pressures on the long-term sustainability of public finances.

“The government continues to be reliant on commodity revenues, while expenditure growth has been driven by a ballooning of the subsidy bill. Tax and subsidy reforms will be needed to better underpin Malaysia's sovereign credit fundamentals relative to its peers,” it said.