MARC to offer syariah ratings soon, reports Star

KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) will introduce syariah-compliant rating services in the second half of this year as part of its diversification plan. Chief executive officer Mohd Razlan Mohamed said the service had not yet been offered anywhere in the world, except Bahrain.
MARC invested a 5.7% stake in a syariah-compliant rating agency in Bahrain in January 2008. “This service will contribute significantly (to company earnings) in five years.
“We are targeting more syariah governance for Islamic entities such fund management and fund broking, as more investors want additional level of comfort (though rating from independent party),” Razlan told reporters after MARC AGM on Mar 26.
Currently, the company derives about 90% of its income from rating services for private debt securities and the remainder from the ratings of foreign currency, financial institution and takaful as well as from the provision of educational courses. The agency has about 35% share of the domestic bond rating market, according to Razlan.
MARC’s move is in line with Malaysia’s aim to be a global Islamic financial hub. Early this year, the Securities Commission granted an additional three Islamic finance licences to foreign fund managers Aberdeen Islamic Asset Management Sdn Bhd, Nomura Islamic Asset Management Sdn Bhd and BNP Paribas Islamic Asset Management Malaysia Sdn Bhd.
Razlan said MARC expected new issuances of ringgit-denominated bonds to drop to between RM25bil and RM30bil this year. However, with the setting up of the Financial Guarantee Institution, expected to be fully operational in May, borrowers with ratings lower than “A” – which comprise 40% of the domestic bond market – might make a return, he said.
In addition, he said, the reactivated Corporate Debt Restructuring Committee would help borrowers with funding requirements of below RM100mil.
MARC group vice-president for fixed income research ratings, Wan Murezani Wan Mohamad, sees corporate bond defaults rising this year to a worst-case scenario of 4.1% from 1.98% last year. In 2007, the default rate was 4.8%. On gross domestic product growth this year, group chief economist Nor Zahidi Alias said he expected a 1.5% contraction. (The Star, Mar 27, 2009)