Khazanah’s latest credit rating by Moody’s leaves room for concern

 

Moody’s said Khazanah Nasional’s baseline credit assessment could be downgraded if it undertakes aggressive debt-funded investments that significantly weaken its credit quality. (Reuters pic)

PETALING JAYA: Moody’s Investor Service says further upgrades of Khazanah Nasional Bhd’s A3 rating for both its euro medium-term notes (MTN) and sukuk programmes are unlikely, should an upgrade of Malaysia’s sovereign rating not occur.

The credit rating agency has assigned a senior unsecured A3 rating to the existing US$10 billion (RM45.7 billion) MTN and existing US$5 billion (RM22.85 billion) sukuk programmes under Khazanah’s wholly-owned subsidiaries Khazanah Capital Ltd and Khazanah Global Sukuk Bhd, respectively.

Proceeds from the MTN and sukuk will be utilised by the government’s sovereign wealth fund to finance working capital, make investments and/or refinance existing borrowings.

Ads by Kiosked

However, Moody’s stated there is a possibility of upgrading Khazanah’s baseline credit assessment (BCA) if there is greater transparency around its portfolio assets, it sustains its excellent standalone liability, and demonstrates a track record of receiving sizeable and stable dividends from investments in and outside Malaysia.

A BCA is an evaluation done by credit rating agencies to determine how financially healthy and reliable a company or organisation is. It’s a starting point for assessing their ability to pay back debts and meet financial obligations.

The BCA gives a grade or rating that shows how risky it is to lend money to or invest in Khazanah.

Moody’s also said Khazanah’s BCA could be downgraded if:

1. It undertakes aggressive debt-funded investments that significantly weaken its credit quality, such that its market-based leverage rises above 40% on a sustained basis;
2. The credit quality of its key investee companies deteriorates, thereby constraining their ability to pay dividends to Khazanah; or
3. Khazanah’s cash needs increase substantially because of higher funding support for non-performing investee companies, or increased shareholder returns to the government.

Furthermore, Khazanah’s A3 rating could also be downgraded if Malaysia’s sovereign rating goes down, or if the government’s support for Khazanah waivers.

The rating agency had given Malaysia an A3 rating last month with a “stable” outlook. It said the economic diversification and the government’s access to robust domestic financing will persist as credit strengthens.

Moody’s added that if Khazanah’s underlying credit fundamentals weaken and its BCA downgrades, the agency could still maintain Khazanah’s A3 rating if the expected likelihood of government support remains high. - FMT