Posted Date: March 17, 2021

MARC's 16th Annual Corporate Default and Rating Transitions Study tracks the history of corporate ratings assigned by the rating agency since its inception in 1996 through to December 31, 2020. Despite the slump in economic growth due to the COVID-19 pandemic, MARC's portfolio of corporate bond issuers remained steady in 2020 with the rating stability remaining high, downgrade rate remaining constant and no defaults being recorded.

In the report, MARC reported a stability ratio of about 95.7%, similar to that in 2019 and higher than the long-term average of 87.2%. This was due to the high concentration of high-grade corporates in MARC's portfolio, representing 91.4% of total corporates in 2020 (2019: 91.3%). Although there has been some weakening in their credit profiles, they retained sufficient headroom in their respective ratings.

MARC's corporate portfolio experienced three downgrades in 2020 (2019: three) with the downgrade rate remaining constant at 4.3%, below the long-term average of 5.9%. The downgrades were mainly due to pre-existing industry-specific overcapacity issues and project delays being exacerbated by the COVID-19 pandemic and subsequent lockdown measures. There were no upgrades nor defaults recorded in 2020.

For three years in a row since 2017, there were no defaults recorded in MARC's rating universe. The long-term annual corporate default rate for the 2000-2020 period remained fell to 1.8% (2000-2019 period: 1.9%). A further breakdown shows high-grade and high-yield long-term default rates easing to 0.7% (2000-2019 period: 0.8%) and 7.7% (2000-2019 period: 8.1%).

MARC's rating accuracy continued to exhibit improvement. MARC uses the Cumulative Accuracy Profile (CAP) as a measure of rating accuracy to analyse the effectiveness of its ratings in predicting defaults across several time horizons. For the 1998-2020 period, MARC's one-year ratings accuracy ratio rose to 70.1% (1998-2019 period: 69.4%) due to the absence of high-grade defaults since 2014. Meanwhile, MARC's one-year ratings accuracy ratio over the period of three and five years until 2020 stood at 81.6% and 98.2% (2019: 77.0% and 98.2%).

For a full copy of this report, please click here.

Tan Jack Fong, +603-2717 2958/ jackfong@marc.com.my;
Firdaos Rosli, +603-2717 2936/ firdaos@marc.com.my.