Published April 30, 2009

Malaysian defaults poised to rise

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(KUALA LUMPUR) Malaysia's corporate debt default rate may rise to 4.8 per cent this year in a 'worst case scenario', which may be the country's worst showing since the Asian financial crisis in 1998, RAM Rating Services Bhd said here yesterday.

Gloomy outlook: With deteriorating credit quality, RAM Rating Services says Malaysia's corporate debt default rate may rise to 4.8% this year, which may be the country's worst showing since the Asian financial crisis in 1998

'Because of deteriorating credit quality, defaults are expected to rise,' Liza Mohd Noor, CEO of the Malaysian ratings company, told reporters. Companies 'with significant dependence on export earnings will be the most vulnerable as the global demand slump results in weaker internal cashflow'.

Malaysia's economy may shrink one per cent this year, which would be its first contraction in a decade, or expand by that amount at best, as exports slump, the government has said. About 8.8 per cent of corporate issuers in Malaysia defaulted on their debts in 1998 at the height of the Asian crisis, RAM said in a statement.

'In times of economic slowdown, refinancing from banks and debt markets, as well as access to equity markets and sales of assets, may not be easily accomplished,' said Ms Liza. RAM's forecast for the default rate, under its base case scenario, is 1.8 per cent this year, she said.

Many issuers have indicated increased difficulty in refinancing, with more companies considering asset sales to meet debt payments, Siew Suet Ming, RAM's head of structured finance ratings, added.

Still, the default rate won't be as bad as in 1998 because Malaysian banks are better capitalised and there's enough liquidity in the market, she said.

About 15 per cent of issuers had their debts placed on a negative outlook or put on 'rating watch' with negative implications, RAM said. There will be more downgrades than upgrades in 2009 as the global economic slowdown worsens during the year, it said. Companies in the industrial and manufacturing industry will be more vulnerable to rating adjustments, it said.

Two companies, including Transmile Group Bhd, defaulted on debts of about RM300 million (S$124 million) last year, or 1.05 per cent of the total number of issuers covered by RAM, it said in a statement. That compares with 1.04 per cent in 2007. -- Bloomberg