RAM: The path to full economic recovery will remain uneven and fragile in 2021

AGAINST the backdrop of various lockdowns that strained finances of issuers’ finances, RAM Ratings took negative rating actions on 17 issuers (9.5% of its rated portfolio) last year.

At the same time, the number of issuers on negative outlook climbed up to 7.8% (2019: 0.6%).

Issuers affected by negative rating actions included those from the tourism/hospitality and travel/aviation sectors which have been hard hit by movement control order (MCO) restrictions.

“We expect the negative bias in rating actions to remain through the next few quarters as 14 RAM-rated entities still carried a negative outlook as oft end-December 2020,” the rating agency pointed out.

“That said, we expect the overall rated credits to withstand near-term pressure because over 80% of our portfolio is anchored by financial institutions and project finance companies with strong capitalisation, robust liquidity buffers and healthy cash flows.”

In view of MCO 2.0, RAM is currently undertaking another portfolio-wide assessment which will be released soon with the preliminary results indicating limited near-term rating pressure on its portfolio.

Meanwhile, RAM’s broader analysis of corporates in Asean-6 (Asean-5 + Vietnam) reveals that Malaysian firms have stronger debt protection metrics than their Asean peers.

Although half of the companies listed on Bursa Malaysia still reported weaker earnings in 3Q 2020 (-0.8% year-on-year [yoy] compared to -33% in 2Q 2020), their debt protection metrics remained intact.

RAM’s study also found that the median gearing ratio averaged 0.22 times (Asean: 0.38 times) for Q3 2020 while debt servicing capacity – measured by the pre-tax earnings-to-debt ratio – averaged 0.34 times (Asean-6: 0.23 times).

“The average Malaysian firm had enough cash to support 3.5 months’ operating expense,” projected the rating agency. “Relative to RAM’s benchmarks and ASEAN peers, these metrics are not considered aggressive.”

Moreover, recent sample data for 4Q 2020 results indicate improvements in these measures for both Malaysia and ASEAN-6.

“The path to full recovery will remain uneven and fragile in 2021, depending much on the success of the country’s vaccination programme and the global outlook,” RAM opined.

“Swift execution of the inoculation regime and no further outbreaks may lend upside to Malaysia’s economic recovery and RAM’s gross domestic product (GDP) growth forecast which currently stands at 5% for this year.” – March 3, 2021

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