World Economy

Moody’s Cuts Malaysia Rating

Moody’s Cuts Malaysia RatingMoody’s Cuts Malaysia Rating

Moody’s Investors Service lowered its credit-rating outlook for Malaysia, citing an external environment that has crimped government revenue despite Prime Minister Najib Razak’s efforts to improve the country’s finances.

The ratings company cut the outlook on the A3 sovereign rating to stable from positive, it said on Monday in a statement. The move brings its outlook into line with that of Standard & Poor’s and Fitch Ratings, with all three companies ranking Malaysia at their fourth-lowest investment grades, Bloomberg reported.

Since Moody’s assigned a positive outlook in November 2013 the government has sought to improve its finances, rationalizing fuel subsidies and putting in place a goods and services tax, the ratings company said. But the impact on the government’s balance sheet has been limited and will remain so, in part due to changes in the external environment, it said.

“Those environmental changes have also undermined Malaysia’s external position, with large capital outflows, a falling current account surplus, sharp exchange rate depreciation and falling reserves,” Moody’s said.

The ringgit, which was already weaker prior to the Moody’s announcement amid general risk aversion related to China, was 0.6% lower at 4.41 a dollar in Kuala Lumpur. The yield on the 10-year government bond was up three basis points to 4.25%.

The outlook cut from Moody’s comes about six months after Malaysia avoided a credit rating downgrade from Fitch. The ringgit slumped about 19% in 2015–falling to a 17-year low–as international investors unloaded Malaysian equities amid domestic political turmoil, falling oil prices and a selloff in emerging-market assets.

Razak came under pressure last year after a multimillion-dollar funding scandal surrounding him came to light and investors grew wary of risks posed by state investment company 1Malaysia Development Bhd. Both the premier and 1MDB have consistently denied any wrongdoing.

  China Firm Downgraded

Evergrande Real Estate Group Ltd., a Chinese developer that’s been on a buying spree this past year, had its ratings cut by Moody’s Investors Service after the builder announced a plan to issue dollar bonds.

Moody’s downgraded Evergrande’s corporate family rating by one notch to B2, as the latest fundraising increased the builder’s financial risk due to a “highly acquisitive appetite and debt-funded strategy for acquisitions,” the ratings company said in an e-mailed statement on Monday. Evergrande is planning to issue 8% dollar bonds due in 2019 to refinance existing debt and to replenish general working capital, it said in a Hong Kong stock exchange filing on Monday.

Chinese developers are facing a raft of headwinds this year, as authorities seek to prop up a weakening yuan and a glut of supply has slowed the sales recovery. While Evergrande recorded strong sales of 201 billion yuan ($34 billion) last year, its high interest payments and expenses have dragged down its profitability, Hong Kong-based Jenny Huang of Fitch Ratings wrote in note on Monday. Very little of the 30% gross margin from Evergrande’s home sales is left to support the expansion, Huang added.