[sangkancil] Rating agencies do a U-turn (fwd)

["M.G.G. Pillai" <pillai@mgg.pc.my>]

---------- Forwarded message ----------
Date: Wed, 28 Apr 1999 00:53:45 GMT
From: Yap Yok Foo <yfyap@pop.jaring.my>
Newsgroups: jaring.general, soc.culture.singapore, soc.culture.malaysia
Subject: Rating agencies do a U-turn

>From The Business Times
28th April 1999

Rating agencies do a U-turn

EUROPEAN rating agency Fitch IBCA has joined the fray, upgrading
Malaysia's credit ratings by two notches to investment grade from junk
on Monday, just like it rushed in with other agencies to downgrade the
country when the economic crisis hit earlier. Were the likes of Fitch
taken in by the meteoric rise in the stock market indices, the
effectiveness of the recovery measures the Government had put in place
or the more bullish outlook by the various investment houses, banks
and other related international authorities? Or is it being attracted
to Malaysia's increasingly favourable outlook in managing the crisis
and perhaps the possibility of certain opportunities which may exist
by turning around and now supporting the country's economic recovery
efforts?

Fitch's decision to upgrade Malaysia's creditworthiness was done with
much publicity - the agency called for a press conference on Monday.
This was certainly a U-turn from the time of downgrading, when all the
rating agencies acted from afar. Perhaps, by coming to Malaysia, it
made Fitch look friendlier or perhaps more sincere in its ratings
although it must be noted that simultaneously on Monday, Fitch also
made an offer for it to be mandated in rating Malaysia's proposed US$2
billion (US$1 = RM3.80) sovereign bond issue. Many other investment
bankers, who were in Kuala Lumpur reently, also gave the thumbs-up to
Malaysia's economic recovery efforts and suggested an international
debt issue, while offering to to act as advisers in such an exercise.
Of course, there would be hefty fees involved in all these exercises.

Malaysia has had no problems with international rating agencies before
and are all for ratings when they are done professionally and
objectively. The two domestic agencies - Malaysian Rating Corp and the
Rating Agency Malaysia Bhd - were set up with plenty of assistance
from some of the international agencies. It is also acknowledged that
ratings have their importance as they are useful in attracting
international investors into a country or to a debt issue. But they
have to be fair in their ratings. For rating agencies to shoot down
Malaysia's economic recovery efforts in the first instance was
uncalled for, especially when these efforts were undertaken by
Malaysia based on its own economic fundamental strengths. These
strengths were simply ignored as Malaysia's creditworthiness went
several notches down to junk status.

Last July Malaysia had a bitter experience with rating agencies when,
on the eve of a planned road show to raise funds for Malaysia's
economic recovery programmes, several international agencies decided
to downgrade the country's sovereign risk rating and long-term foreign
currency sovereign rating. The result of their actions forced the
Government to abort the road show because it would have been very
costly to obtain the funds with the low ratings that had just been
given by these agencies. The agencies brushed aside subsequent
suggestions that they had a hidden agenda. Malaysia presevered, and
without the much needed funds, introduced drastic measures to shore-up
its domestic economy. Even then it was criticised by the rating
agencies, who said that the selective capital controls, the country
had introduced, would drive investors away.

Like many of these rating agencies, Fitch may have erred in its
earlier analysis. On Monday however, Malaysia's creditworthiness was
again seen as favourable in Fitch's eyes, just like it has become in
those of Moody's Investors Service and Standard and Poor's. There
could have been many factors that brought about the sudden reversal of
ratings. Perhaps the international agencies and investment banks are
beginning to realise that Malaysia's economic recovery measures are
indeed workable although one would be inclined to conclude that the
shift has plenty to do with the return of confidence in sovereign
papers of and investment climates in emerging markets and the
favourable response to sovereign debt issue by such markets. Above
all, it may have a lot to do with the opportunities that these
agencies and institutions may derive from the countries now eagerly in
pursuit of economic recovery - Malaysia included. So who's next with
the bouquet of flowers?
http://www.nstpi.com.my/bt



**************From Uncle Yap**************
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