The financial issues surrounding 1Malaysia Development Bhd (1MDB) is not a sign of broad-based distress among government-linked companies (GLCs), says Moody’s Investors Service.
It said aside from 1MDB, such companies have continued to service their outstanding debt due to their solid track record of corporate governance and profitability.
“No guarantees have yet to crystallise on the government’s balance sheet,” said Moody’s vice-president Rahul Ghosh during the release of Moody’s ‘Malaysia: Most Rated Entities Will Withstand External and Domestic Challenges’ report.
Turning on other corporates and financial institutions in Malaysia, he said they could withstand external and domestic challenges, while the economy continues to grow at a moderate pace.
“Headwinds for Malaysia’s (A3 positive) economy include low commodity prices, currency weakness and contingent liability risks.
“We expect Malaysia to continue exhibiting macroeconomic resilience, namely, moderating, but still with positive gross domestic product growth, low inflation rates, and a sustained current account surplus.
“This is despite an adverse external environment and slower domestic consumption,” he added.
Rahul said this situation should ensure a reasonably supportive backdrop for rated issuers.
The Moody’s report also said that external risks will persist, but are manageable, and expects the external environment to remain challenging over the coming quarters, on the back of weak energy prices and the likelihood of monetary tightening in the United States.
He said such an environment is likely to hurt revenue for the sovereign and energy major, Petroliam Nasional Bhd (A1 stable) this year and next.
Rahul added that likewise, debt levels are at risk of rising for plantation companies, due to lower EBITDA and cash generation from weaker palm oil prices.
Nevertheless, the report expressed the majority of Moody’s-rated entities will absorb adverse external conditions over the coming quarters due to their low exposure to commodity prices and exchange rate volatility.
Private consumption growth to slow
Moody’s expects private consumption growth to slow in coming quarters in the wake of the implementation of the Goods and Services Tax (GST) in April, as well as high levels of household debt.
“The ongoing slowdown in the property sector will also weigh on consumer spending,” it said.
However, the impact of a weak consumer on the banks and corporates is unlikely to prove a major credit stress, it added.
By comparison, a renewed commodity price slump and aggressive Fed tightening would be credit negative for rated issuers.
In the event that global commodity prices, particularly oil, correct significantly and remain depressed over the course of 2015 and 2016, Malaysia could experience both twin fiscal and current account deficits and renewed capital outflows.