Posted Date : 26 Mar 2009
The year under review, 2008, was a challenging one for MARC arising from the global financial meltdown that had originated from the US housing crisis but swiftly engulfed the rest of the world. The Malaysian economy, which grew at a slower rate of 4.6% in 2008, is expected to continue to face a challenging 2009.
Amid the global economic crisis, which has affected the vibrancy of the Malaysian bond market, MARC reported commendable financial results in FYE 2008. Operating revenue reached RM20.0 million in 2008, a slight decline from RM21.2 million in 2007. Consequently, Group profit before tax declined by 18.7% to RM9.6 million from RM11.8 million in the preceding year, while Group profit after tax fell to RM6.6 million from RM8.3 million in 2007.
In 2008, MARC completed 43 new issue credit ratings with a total rated value of RM27.41 billion. Of these, 27 issues with a total rated value of RM16.97 billion had been issued in the market. The breakdown of the new issue credit ratings by type is as follows: RM24.02 billion in Corporate Debt (24 issues, 20 issuers), RM1.553 billion in Structured Finance (15 issues, 6 issuers), and RM1.835 billion in Project Finance (4 issues, 3 issuers).
In terms of the analytical groupings, financial institutions led with a combined rated value of RM19.20 billion, followed by oil and gas (RM1.470 billion), trading and services sector (RM1.360 billion), infrastructure (RM0.920 billion), construction (RM0.600 billion), plantation (RM0.400 billion) and consumer products (RM0.070 billion). Project finance bonds with a total value of RM1.835 billion were rated involving 3 issuers (construction, RM1.0 billion, infrastructure and utilities, RM0.835 billion) during the year. Of the structured finance transactions rated in 2008, property-backed transactions accounted for 65% of the rated value (RM1.010 billion), plantation asset-backed (RM0.223 billion), construction receivables (RM0.170 billion) and telecommunication towers lease rental backed transactions (RM0.150 billion).
Despite the challenging environment in 2008, MARC had been entrusted to rate a number of high quality foreign issuers tapping the ringgit bond market for the first time for funding. These include two South Korea-based financial institutions namely The Export-Import Bank of Korea (KEXIM) and Woori Bank; India-based State Bank of India and Singapore-based OCBC Bank Ltd. A total value of RM7.0 billion bonds were rated by MARC for these foreign financial institutions.
In the first three quarters of 2008, MARC’s rating universe was generally unaffected by the global financial crisis, but the fourth quarter showed signs of credit deterioration with a higher number of downgrades recorded. However, its full year ratio of downgrades to upgrades in 2008 improved to 1:1 as compared to 2.6:1.0 recorded in 2007. Going forward, MARC anticipates some credit deterioration but constrained to those issues which have been downgraded to speculative rating grades.
Moving forward to 2009, the bond market will continue to experience a slowdown in terms of issuances. MARC’s Chief Executive Officer, Mohd Razlan Mohamed said, “Risk averseness to corporate bonds, particularly lower-rated papers, is likely to persist in 2009, and will prompt investors to seek the safe-haven status of Malaysian government bonds.”
However, the government’s move to establish the Financial Guarantee Institution (FGI) to provide credit enhancement for companies seeking to issue bonds, Razlan said, will provide a much needed fillip to the domestic bond market. “It will also address the long-standing issue of debt funding access for lower rated companies,” he noted.
MARC has employed appropriate strategies to cope with the current challenging environment that will enable it to continue to maintain a satisfactory operating performance to meet its stakeholders’ expectations, Razlan added.