KUALA LUMPUR: Default rates in Malaysia’s corporate bond market have declined significantly to below one per cent up to last year, since the Asian Financial Crisis, the Securities Commission said.
The SC executive director of market and corporate supervision Kamarudin Hashim said there were several issuance segments that may see higher risks to their credit positions.
This is due to uncertainties developing from the Covid-19 pandemic as well as slower global economic growth.
Kamarudin said aviation, oil and gas as well as trading and services were under stress.
The sectors currently represent about 8.0 per cent of the total corporate bond issuances.
“It is important to emphasise that issuers within these segments may experience some financial stress in the short term that could weaken their credit positions but not necessarily in default as majorities are in the AAA and AA rating categories,” he said during a virtual media conference on the SC Annual Report 2019 today.
Kamarudin said there should be sufficient buffers before cash flow become severely constrained in the event of credit deterioration.
“Several of these issuers within these segments have some form of support in the form of guarantees; be it financial guarantees, corporate guarantees or Danajamin guarantees,” he added.
He said issuers should also aware of their obligations to provide interests or profits within the next six months
“We view that the prolong weakening of issuers cash flow will be a cause of concerns. The SC will continue to monitor this space.”
He said investors in the corporate bond markets, predominantly institutional investors, should pursue various options to preserve their investments through negotiations such as reschedule or restructuring or rigorously pursuing the contractual right and priority of claims against the issuer.
In relation to peer-to-peer (P2P) financing, he said the average default rate remained similar to last year at around the 4.0 per cent.
He added that P2P operators had since taken proactive steps to adapt to credit assessment and credit limits, offering to restructure or reschedule measures and others to the issuer.
“At this moment, the SC is not considering imposing a blanket moratorium on P2P financing notes. But our approach is for issuers to work together with the operators, if they are under stress for possible restructuring and rescheduling," he said.