Posted Date: March 23, 2018

MARC today published its 2017 Annual Corporate Default and Rating Transitions Study which tracks the history of corporate ratings assigned by the rating agency from its inception in 1996 through to December 31, 2017. This is MARC’s 13th Annual Corporate Default and Rating Transitions Study.

MARC’s long-term average ratings stability rate, which covers the 1998-2017 period, rose to 85.7% on the back of an improvement in corporate earnings growth in 2017. The enhanced ratings stability can also be attributed to the high concentration of creditworthy issuers with low downward rating momentum in MARC’s corporate rating universe. After adjusting for withdrawn ratings, 92.8% of issuers rated “A” and above (hereinafter referred to as “high grade”) maintained their ratings.

In 2017, MARC recorded only two rating migrations – one downgrade and one default – the least observed since 2002. Comparatively, there had been four downgrades in 2016. The one-notch downgrade (from high grade to high yield, i.e. “BBB” and below) in 2017 was that of an unpublished stand-alone rating. Meanwhile, the single default, the first in three years, did not substantially alter the long-term average default rate, which remained unchanged at 2.1%. MARC did not upgrade any issuers in 2017 and 2016.

The absence of severe negative rating actions or rating cliffs reflects MARC’s timely rating actions. Over the long term, MARC’s one-year ratings accuracy ratio came in higher at 68.3%, compared to 67.3% in the previous default study. The higher ratio indicates the improving effectiveness of MARC’s ratings as a measure of relative default risk.

MARC foresees Malaysia’s GDP growth to register at 5.3% in 2018, supported by resilient private consumption and ongoing infrastructure spending. Support from the external sector is also expected, though there are concerns about rising protectionism. Against this backdrop, MARC expects non-financial corporates in its rated universe to continue on predominantly stable ratings trajectories in 2018. As positive earnings growth is likely and corporate leverage is expected to remain at moderate levels, MARC is maintaining a stable outlook on most sectors. The notable exception is the property sector because of the growing demand-supply imbalance in the high-end residential property segment.

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

Lee Si Xin, +603-2717 2959/ sixin@marc.com.my;
Tan Jack Fong, +603-2717 2958/ jackfong@marc.com.my;
Nor Zahidi Alias, +603-2717 2936/ zahidi@marc.com.my.