Selangor water bonds will face further rating downgrades if the discussion to resolve the industry’s restructuring exercise remains at an impasse by July when the first batch of bonds are due for repayment.

"If payments are not made by July 19, by rating definition, it is a default.

"Therefore, there is a possibility the current rating could be downgraded further if there's no development on the restructuring exercise," said RAM Rating Services Bhd chief executive officer Chong Kwee Siong today.

Last month, RAM maintained the Rating Watch with a negative outlook on the BBB3 ratings of the respective debt issues of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd, Destinasi Teguh Sdn Bhd and Sungai Harmoni Sdn Bhd.

Speaking to reporters after a briefing on RAM's Annual Corporate Default and Rating Transition Study 2010 in Kuala Lumpur, Chong said the rating agency would maintain close monitoring of the relevant developments and would reassess the ratings by

end of May 2011 or when there was material progress.

Meanwhile on the general credit trend, RAM expects it to be "somewhat neutral to negative" this year with the downgrade risk to be driven by company-specific factors and resolution of water-related issues.

Its structured finance ratings manager, Ang Swee Ee, said that based on RAM's current portfolio rating and outlook distribution, the projected base case and worst case annual default rates for 2011 stood at 0.6 per cent and 2.6 per cent respectively.

"This translates into one to four issuers that possibly could go into default," she said.

On the other hand, some credit upgrades may be seen from the plantation, banking and oil and gas sectors, albeit to a limited extend.

Last year, more that 80 per cent of its portfolio remained on a stable outlook with zero defaults.

The credit trend last year (by rating notches) stayed resilient with 14 upgrades versus nine downgrades, translating into an upgrade-to-downgrade ratio of 1.56 times.

"Nonetheless, we anticipate that most of the rated entities within our portfolio will stay resilient, underpinned by their relatively high ratings," Ang said.

- Bernama