Moody’s assigns A3 to Malaysia Sovereign Sukuk’s debt notes

KUALA LUMPUR: Moody's Investors Service has today assigned definitive A3 senior unsecured ratings to the US dollar trust certificates issued by Malaysia Sovereign Sukuk Bhd, a special purpose vehicle established by the government.

Moody's said on Wednesday its definitive ratings for these debt obligations confirmed the provisional ratings assigned on April 6.

The A3 rating assigned to the sukuk is at the same level as the long-term local-currency and foreign-currency issuer ratings of the Government of Malaysia.

The international ratings agency said the sukuk certificate holders will effectively be exposed to the Government of Malaysia's senior unsecured credit risk.

The holders would also not be exposed to the risk of performance of the Portfolio Assets relating to the certificates.

Also these holders will not have any preferential claim or recourse over the trust assets, or rights to cause any sale or disposition of the trust assets except as expressly provided under the transaction documents.

However, the holders only have rights against the government, ranking pari passu with other senior unsecured obligations as provided in the transaction documents.

Moody's pointed out its sukuk rating does not express an opinion on the structure's compliance with Shariah law.

“The proceeds of the sukuk will be used by the issuer to invest in the purchase of an asset pool consisting of Ijara assets, the right to participate in the provision of transportation services in Malaysia, and Shariah-compliant commodities.

“The assets will be managed by the government as the agent for the provision of Wakala services on behalf of the Issuer (acting as trustee for the Certificate holders).

"The government will collect income against the relevant periodic distribution amounts due for each series,” it said.

In January, Moody's affirmed Malaysia's sovereign bond rating at A3 and maintained the outlook at positive.

The key drivers of the decision were the government's intention to adhere to its policy of deficit reduction; and Malaysia's fundamental strengths—notably macroeconomic stability, domestic capital market depth and predominantly local currency-denominated debt—that provide a considerable amount of resistance to an adverse external economic environment and global financial market volatility.

“Malaysia's policy response in the year ahead to pressing external challenges, such as lower global crude oil prices and the normalization of US Federal Reserve monetary policy, will influence the trajectory of Malaysia's sovereign rating.

“Malaysia's credit profile is also characterized by thinning foreign currency reserve adequacy, as well as a government debt stock that is higher than similarly rated peers.

“Contingent risks have also risen, as represented by a higher stock of government-guaranteed debt and recent debt stress in an off-budget financing vehicle,”  it said.

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