This article is an interesting read, written by Alex Bursak, Euler Hermes. Let’s start this by stating the fact, “….about 45% of Malaysian sovereign debt is owned by foreigners….” and ” Euler Hermes has downgraded …. to BB2 as GDP growth is expected to lose further steam in 2015 (revised to 4.8%) and 2016 (4.7%)”.
After being one of the top performers in ASEAN in 2014, cost of insuring Malaysian sovereign debt has risen the most this year compared benchmarked to its ASEAN peers as state investor 1MDB’s financing woes grew and concerns deepened about the prospects for the net oil exporter’s petroleum revenues. The cost to insure Malaysian sovereign bonds reached the highest level since 2009 in September after Najib faced calls to step down over a probe of fund transfers into his personal bank accounts. The combination of political turmoil, falling oil prices and a broader selloff in emerging-market assets has pushed up the nation’s credit-default swaps twice as much as those for lower-rated Indonesia in the past 12 months, even as the Government makes progress in reining in the fiscal deficit.
Najib has come under fire over debt accumulated by state investment company 1Malaysia Development Bhd., whose advisory board he chairs, and about $700 million of political donations. The central bank said it had proposed criminal proceedings against 1MDB after its probe found inaccurate disclosures.
While S&P says 1MDB’s failure to meet a loan obligation has little impact on the company’s bonds, investors are worried about the wider implications for the country’s sovereign rating. About 45% of Malaysian sovereign debt is owned by foreigners.
The concerns first emerged when oil prices started to slide, a downdraft that has taken them to their lowest levels since April 2009. Malaysia stands at A3/A-/A-, a notch higher than Thailand’s Baa1/BBB+/BBB+ and three to four steps above Indonesia’s Baa3/BB+/BBB-.
Euler Hermes has downgraded to BB2 as GDP growth is expected to lose further steam in 2015 (revised to 4.8%) and 2016 (4.7%). This downgrade is mainly reflecting lower commodity prices, softer global demand, especially from China, and reduced domestic demand growth. Plus, domestic buffers have weakened. Consumer confidence is on a downward trend as a result of political scandals, lower economic prospects and lower “global purchasing power” due to the declining Ringgit.
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