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Borneo, Sarawak, Sarawak Corridor of Renewable Energy (SCORE), Sarawak Economy, Sarawak Politics, Uncategorized

Moody’s may upgrade Sarawak’s rating

INTERNATIONAL ratings agency Moody’s has said it may revise Sarawak’s Baa1 rating to A3.

If this is the case, the State would be on the same rating as Malaysia! Amazing.

If you have been following international news reports, you’d know that ratings agencies like Moody’s have not been doing many upgrades recently.

In fact, most of Moody’s ratings reviews have been downgrades. A recent downgrade would be that of Hungary’s goverment bonds from Baa3 to Ba1.

Moody’s has also indicated that it may downgrade banks in 15 European countries including major lenders France, Italy and Spain.

In this context, the possible upgrade for Sarawak’s rating is even more impressive.

The agency said in a statement today that the rating review is supported by Sarawak’s strong record of positive financial performance, with the generation of operating and financing surpluses over many years, which have contributed to its growing reserve levels.

“Such positive results in recent years reflect robust growth in commodity-related revenue and the state’s prudent approach to fiscal management.

“This includes conservative budget projections and tight control over stable and predictable operating expenditure,” said the agency.

Sarawak recently received a clean bill of financial health from the Attorney General’s report.

The State also just passed an RM79 million surplus budget.

Now an international agency which has been unimpressed with developed nations is considering upgrading Sarawak’s rating.

Impressive stuff. Lest we forget, a sound economy can only come about through political stability and wise, experienced leaders with the actual capabilities lead.

The Bernama report:

Moody’s Places Sarawak’s Baa1 Rating Under Review For Possible Upgrade

KUALA LUMPUR, Nov 29 (Bernama) — Moody’s Investors Service has placed Sarawak’s Baa1 issuer rating under review for a possible upgrade, to reflect the state’s strong record of sound financial performance and an increasing budget flexibility provided by its accumulation of ample reserves.

The rating review is supported by Sarawak’s strong record of positive financial performance, with the generation of operating and financing surpluses over many years, which have contributed to its growing reserve levels.

“Such positive results in recent years reflect robust growth in commodity-related revenue and the state’s prudent approach to fiscal management.

“This includes conservative budget projections and tight control over stable and predictable operating expenditure,” it said in a statement today.

Financing surpluses averaged 28 per cent of operating revenue from 2004 through 2010 and was in excess of 20 per cent in most of those years.

The state’s debt burden rose sharply in 2011 as a result of borrowings undertaken to build infrastructure, which is part of a strategy to attract industrial activity to the Sarawak Corridor of Renewable Energy (SCORE).

Moody’s projects that debt to revenue — including future planned borrowings — will amount to an elevated 170 per cent of revenue at year-end 2011.

“While this level of indebtedness is comparatively high on an international basis, the debt burden calculation, does not take into consideration the state’s substantial liquid reserves,” it said.

These financial assets provide an important financial cushion in support of the elevated debt load.

However, Moody’s notes that reserves have grown steadily in recent years, amounting to nearly 200 per cent of gross debt in 2010.

Such coverage is expected to decline in 2011, given the substantial additional borrowings, but would remain well in excess of the stock of debt outstanding.

The state’s reserves are conservatively invested in cash and short-term instruments held at a wide variety of Malaysian financial institutions.

The review, it said would focus on the state’s debt management strategy, sinking fund arrangements and future borrowing plans.

To the extent that the review of these elements reveal a coherent strategy that would support ongoing improvements in the state’s financial strength, this would apply upward pressure on the rating and could result in a one-notch upgrade to A3, equivalent to the rating on Malaysia.

The outlook on the Baa1 rating could return to stable if the review reveals inconsistencies and risks associated with the debt and investment strategies of the state, Moody’s added.

— BERNAMA

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