Posted Date: February 25, 2016

Malaysian Rating Corporation Berhad (MARC) today held its 2016 Investors' Briefing at The Majestic Hotel Kuala Lumpur. At the briefing, which was attended by participants from the financial and other prominent sectors in Malaysia, MARC shared its house views on the Malaysian economy and the key industries in Malaysia.

In his welcoming remarks, MARC Chief Executive Officer Mohd Razlan Mohamed said that the rating agency is looking ahead to an exciting year in 2016 as it celebrates its 20th corporate anniversary as a rating agency. "Nevertheless, it will also be quite a challenging year based on the actual and probable events that have unfolded since 2015,” said Razlan.

In line with MARC's continuing commitment to create and disseminate value-added knowledge to its stakeholders, particularly investors, the briefing served as a platform to promote multi-stakeholder dialogue and share the agency's views on the economy, the prospects of industrial sectors in MARC's rating universe and the relevant risk drivers.

The Investors' Briefing began with a presentation on the domestic economic outlook and the outlook for corporate credit by MARC's Chief Economist and Chief Rating Officer respectively. Sector outlooks were shared by senior analytical team members for the oil & gas, banking, palm oil and property sectors, as well as the toll road and power segments. In its Economic Outlook for 2016, MARC expects low crude oil prices to continue impacting economic growth, the fiscal balance sheet and the ringgit’s performance. The agency opined that the government would remain committed to redoubling its fiscal consolidation efforts, as indicated by the recalibration of Budget 2016.

On the external front, MARC identified uneven global growth as the cause of policy divergence among countries. In turn, financial market uncertainty has increased with financial market performance reflecting fragile investor sentiment. Malaysia faces external headwinds in the form of slowing global growth with renewed concerns about growth in the US and Japan. Another cause for concern is the slowdown in China, Malaysia’s largest trading partner in terms of total trade.

As a result, MARC sees less benign credit conditions ahead. Domestic corporates will be challenged to maintain and/or improve on their credit metrics with weaker earnings and cash flow generation. Rating headroom would consequently remain tight in 2016. Corporates' increase in debt usage, in part caused by merger and acquisition activity, continues to exert pressure on corporate balance sheets. Debt as well as cash flow protection measures such as debt/EBITDA and cash flow from operations interest coverage have weakened. The prospect of further downward pressure on corporate credit quality for certain companies in the oil and gas, automotive and property sectors remains. In the absence of supportive supply/demand fundamentals in these sectors, MARC believes that asset rationalisation initiatives, deleveraging efforts and successful extension of debt maturities will remain key to moderate the pressure on credit quality.

Ahmad Feizal, +603-2082 2211/ feizal@marc.com.my;
Yap Ngee Heong, +603-2082 2238/ ngeeheong@marc.com.my.