KUALA LUMPUR, July 2 ― 1Malaysia Development Berhad (1MDB) was open about its current situation when it spoke to Fitch Ratings ahead of the agency’s revision of Malaysia’s credit outlook, the company’s chief executive Arul Kanda Kandasamy said today.
Arul Kanda said 1MDB explained its challenges to the global ratings agency and the steps it was taking to pare down its debts, which stood at a reported RM41.9 billion as of March 2014.
“In relation to 1MDB, we had conversations with Fitch in advance of the upgrade, in which we discussed the company’s current situation and provided confidence on the measures being taken.
“We were open about the challenges we face, outlined our efforts to reduce the company’s debt as presented in our rationalisation plan, and provided information on the various actions that have already been taken including the repayment of a RM3.6 billion loan in June,” he said in a statement today.
Despite signalling a possible downgrade earlier this year, Fitch Ratings maintained Malaysia’s credit ranking at the fourth-lowest investment grade after observing that the country’s finances are improving.
In a statement Tuesday, the ratings agency also said the outlook on the country’s A- grade was revised from negative to stable, thanks to the GST and reforms on the fuel subsidy system here.
“Malaysia’s rating remains supported by reasonably strong real GDP growth rates and low inflation volatility,” Fitch said.
Today, Arul Kanda said he was “proud” as a Malaysian that the country’s rating outlook was upgraded by Fitch Ratings, adding that it resulted from an “independent review by an external party” and represents recognition of the local economy’s growing strength.
“Furthermore, the upgrade is evidence of the government’s success in ensuring the continued economic stability of our country. The Ministry of Finance and Bank Negara in particular have done a commendable job in highlighting the positives of our economic success story,” he said.
In 2013, Fitch downgraded Malaysia’s outlook to negative. Fitch’s head of Asia Pacific sovereign ratings, Andrew Colquhoun, had warned this March that there was more than a 50 per cent chance of a downgrade for Malaysia, which he said would sit more naturally in the BBB range.
According to Bloomberg, Moody’s Investors Service and Standard & Poor’s similarly place Malaysia at their fourth-lowest investment grades, with both giving a positive and stable outlook respectively.
In May, Moody’s told Malay Mail Online that it could not spell out how a loan default by 1MDB would directly impact Malaysia’s sovereign rating due to the fluidity of the situation surrounding the firm, but noted that government guarantees for the firm’s borrowings ultimately derails efforts by Putrajaya to narrow the country’s fiscal shortfall.
“We do not consider 1MDB’s debt liabilities as obligations of the federal government, with the exception of the guarantees that have been provided for a subset of 1MDB’s borrowings.
“Having said that, the provision of government support to 1MDB that significantly derails the current trend of fiscal consolidation would be negative for the sovereign rating,” Moody’s vice-president and senior analyst of sovereign risk Christian de Guzman said in an email to Malay Mail Online.
