Moody’s changes FC, LC risk ceilings for Malaysia, long-term FC bond raised to A1

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SINGAPORE: Moody’s Investors Service has  adjusted the foreign currency (FC) bond and local currency (LC) country  risk ceilings for Malaysia yesterday.

In a statement, it said the sovereign rating of the government of Malaysia is unaffected by these changes. The change in ceilings mean that the highest rating that can be assigned to a domestic issuer in Malaysia, or to a structured finance security backed by local currency receivables, is now as follows: The long-term FC bond ceiling was raised to A1 from A3; The long-term FC deposit ceiling remained at A3; The short-term FC bond and deposit ceilings also remained unchanged at P-1; and, The long-term LC bond and deposit ceilings were lowered to A1 from Aa2.

Moody’s said its decision to re-adjust the country ceilings for Malaysia is based on its assessment of moratorium risks given the country’s ability and willingness to service both its public and private cross-border debt obligations.

Largely due to healthy current account surpluses, Malaysia has amassed a  substantial foreign exchange reserve buffer over the past decade and especially since the global financial crisis, it said.

Simultaneously, Malaysia had continued to rely primarily on LC instruments for financing – 96.5 per cent of direct government debt is denominated in ringgit as of the third quarter of 2012 – and the growth of the private sector’s FC indebtedness has remained manageable. Thus, given ample reserve adequacy, the imposition of a moratorium on foreign exchange in the event of a government default is unlikely, Moody’s said.

Since the complete dismantling of selective capital controls early last decade and the subsequent liberalisation of the exchange rate in 2005, non-resident absorption of Malaysian government securities had risen substantially. — Bernama