S&P keeps rating despite KL loan

S&P keeps rating despite KL loan

KUALA LUMPUR (Reuters): Standard and Poor's will not immediately revise its poor rating on Malaysia despite news the country has secured a $1.35-billion loan from 12 foreign banks, officials at the international ratings agency said on Thursday.

S&P officials in Singapore said there was no immediate need to revise its "BBB minus" for Malaysia's key long-term foreign currency rating.

"We have taken into consideration some of the funding needs of Malaysia. Our outlook on Malaysia is negative," one official said.

"Our outlook reflects the higher uncertainty about the direction of the economic policy in this challenging environment. We would review the outlook and the rating if there is credible financial sector reforms."

Citing a "dramatic" worsening in the policy environment, the agency had in September cut the rating two notches to "BBB minus" from "BBB plus" -- the lower end of investment grade and one step short of speculative grade.

Malaysia imposed capital controls on Sept. 1 which if sustained, would depress Malaysia's future growth prospects, the ratings agency had said.

Malaysia's Second Finance Minister Mustapa Mohamed said on Tuesday the terms of the $1.35-billion loan from foreign banks proved that international rating firms were not correct in their view of the country.

"The loan terms represent... a rating equivalent of AA," he said at a signing ceremony for the loan. "It debunks the rating given by international agencies... (like) Moody's," he said.

The government earlier signed the $1.35-billion loan on favorable terms with 12 foreign banks incorporated in Malaysia.

The Finance Ministry said it would pay an attractive interest rate of 3.0 percentage points above the London Interbank Offered Rate (LIBOR), currently at around 5.1 percent, on the five-year amortizing term loan.

Other Malaysia sovereign debt issues such as Petronas bonds were currently trading at 6.0-7.0 percentage points above LIBOR, bankers said.

Malaysia has found it hard to raise funds in the international capital markets since its sovereign rating was downgraded by S&P and another major international rating agency Moody's. It has to pay high interest rate if it were to issue sovereign bonds under its name.

Prime Minister Mahathir Mohamad slammed ratings agencies at the Asia Pacific Economic Cooperation summit last month, saying that moves to restore confidence in crisis-hit economies were undermined by "negative and biased" reporting by several agencies and the media.

Malaysian newspapers said on Thursday the $1.35-billion loan would be disbursed to asset management firm Pengurusan Danaharta Nasional Bhd, Bank Bumiputra Malaysia Bhd and four other state- owned banks.

Danaharta was set up by the government to take over banks' non-performing loans.

Debt-laden Bank Bumiputra recently won 1.1 billion ringgit ($289 million) in fresh state funds. This was the third time in its 33-year history the bank was bailed out by the government.

Officials at Bank of Nova Scotia Bhd, a unit of Bank of Nova Scotia, and one of the 12 participating banks, said the loan price was representative of the Malaysian government's risk profile.

"Malaysia is in good shape and not as bad as it is made out to be internationally," Malaysia's Business Times quoted Bank of Nova Scotia Bhd managing director Rasool Khan as saying.