MARC has published for comment an exposure draft which outlines the rating agency's updated methodology on Rating Malaysian State Governments.
The exposure draft substantially updates MARC's analytical framework with the introduction an adjustment factor to reflect the propensity of extraordinary federal support to avert defaults of state obligations. Given the current environment of rising volatility, uncertainty, complexity and ambiguity, federal support has become an increasingly important credit factor.
Other updates are:
- The explicit mention of the fact that both Sabah and Sarawak enjoy some degree of self-autonomy under the 1963 Malaysia Agreement, a strong credit support, which states in Peninsular Malaysia do not enjoy; and
- The inclusion of sustainability considerations.
MARC's credit rating of a state represents our opinion of its capacity and willingness to repay commercial debt obligations in full and on time. It reflects our assessment of a state's capacity and willingness to honour senior obligations under financial contracts that include third-party credit guarantees or partial guarantees, liquidity facilities and similar products, given appropriate documentation and authorisation.
MARC welcomes comments on any aspect of the draft methodology during the comment period and will consider all comments received in writing by September 7, 2020. Comments on the exposure draft should be sent to email@example.com. All responses will be regarded as on the public record unless confidentiality is requested by the commentator. MARC will finalise the updated rating methodology following a review of comments received during the consultation period. Once finalised, the methodology will apply to both new ratings and existing financial institution ratings.
The aforementioned exposure draft can be accessed on MARC's website.