Moody's assigns A3 rating to Malaysia's international sovereign sukuks

KUALA LUMPUR: Moody's Investors Service has assigned a senior unsecured rating of A3 to the proposed US dollar-denominated trust certificates (sukuks) with maturities of 10 and 30 years, that would be issued by Malaysia Wakala Sukuk Berhad.

The latter is a special purpose vehicle (SPV) established by the government of Malaysia.

In a statement today, Moody's said the A3 rating assigned to the sukuks are at the same level as the long term local currency and foreign currency issuer ratings of the government of Malaysia.

It said Malaysia's A3 rating is underpinned by its diversified, competitive and moderately large economy, strong medium-term growth potential compared with peers, and ample natural resources.

"Credible and effective macroeconomic policymaking institutions also foster stability and support the country's economic resiliency.

"These conditions have generated a large pool of domestic savings over time, which anchors interest payments for the government and reduces its liquidity risk and reliance on external financing," it noted.

It said balanced against these credit strengths are the government's narrow revenue base that limits fiscal flexibility and its relatively high debt burden and weak debt affordability compared with its peers.

Political noise, Moody's opined, could also distract the government from its policy priorities, particularly longer-term reforms that may strengthen the credit profile over time.

Meanwhile, the proceeds of the sukuks will be used by the issuer to purchase a Wakala asset pool consisting of vouchers representing travel entitlements on selected public transport in Malaysia.

The assets will be managed by the government of Malaysia as agent for the provision of Wakala services on behalf of the issuer (acting as trustee for the certificate holders).

The government will collect all returns on the portfolio assets against the relevant periodic distribution amounts due.

-- BERNAMA