Moody's: RM6.23b bailout of Felda a credit negative to govt debt

KUALA LUMPUR (April 18): The RM6.23 billion financial assistance Putrajaya planned to spend in bailing out ailing state-owned palm oil plantation agency Federal Land Development Authority (Felda) will add to the government's debt burden.

In a note today, international rating agency Moody's Investors Service said Malaysia government's debt is already significantly above the median of A-rated sovereigns, and the bailout package is a credit negative.

Moody's noted that the government plans to spread its aid over seven years, and while Felda will raise about half of this, these fund raisings will be backed by government guarantees, while the remainder will come from loans and grants.

"We estimate that the assistance will raise the government's debt burden by 0.3% of gross domestic product (GDP) to 56.0% in 2019, substantially higher than median debt ratio for A-rated sovereigns of 37.8%, and up from 50.7% in 2017.

"In our estimates, we include the debt of state-owned investment fund 1Malaysia Development Bhd (1MDB) and RM20 billion of funding provided to Tabung Haji, the state-owned pilgrimage fund, at the end of last year through an asset-backed sukuk," it said.

Moody's said a higher debt burden will weigh on Malaysia's debt affordability, particularly because the share of revenue to GDP, at 16.3% in 2018, is likely to remain at or near record lows.

"Interest payments account for 13.3% of revenue, significantly higher than the A-rated median of 4.0%," it said. —

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