MARC today published its 15th Annual Corporate Default and Rating Transitions Study which tracks the history of corporate ratings assigned by the rating agency since its inception in 1996 through to December 31, 2019. The database used for this study was constructed using long-term standalone ratings of those issuers.
Malaysia's corporate bond market was robust in 2019 with record high gross issuances and aggressive declines in yields. The total long-term corporate bond issuances surged to RM132.0 billion (2018: RM103.9 billion) amid tightening credit spreads and a lower yield environment caused by easing monetary policies. Yields on AAA and AA-rated corporate bonds were broadly lower by 72bps to 89bps y-o-y in 2019. Meanwhile, yields for A-rated corporate bonds fell more sharply by 105bps to 236bps y-o-y in the same period.
MARC's portfolio of corporate bond issuers remained healthy in 2019. The results of this latest study showed that MARC's ratings were stable, and their accuracy have improved. There were no defaults recorded in 2019 as well.
MARC's rating stability rate for 2019 period fell to 95.7%, down from 98.6% in 2018 but remained above the annual average of 86.8% since 2000. This was largely due to the increased pace of downgrades recorded for 2019. In 2019, MARC recorded three downgrades (2018: one), and as a result, the downgrade rate rose to 4.3% (2018: 1.4%). This has caused the rating drift (upgrades minus downgrades and defaults) to fall deeper into negative territory. In 2019, MARC recorded no upgrades for the seventh consecutive year.
Meanwhile, MARC's ability to predict defaults and be consistently effective in rank ordering credit risk through its ratings showed improvement. For the period of 1998-2019, MARC's one-year rating accuracy ratio improved to 69.4% (1998-2018 period: 68.6%). This is reflected in the lower number of defaults occurring among high-grade corporates compared to those rated in the lower rating band.
Although negative rating actions increased in 2019, issuers within MARC's rating universe experienced no default (2018: zero default). This brought the long-term annual corporate default rate for the period of 2000-2019 marginally lower to 1.9% (2000-2018 period: 2.0%). A further breakdown shows high-grade and high-yield long-term default rates easing to 0.7% (2000-2018 period: 0.8%) and 8.1% (2000-2018 period: 8.5%).
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