Malaysia '09 corporate bond defaults may hit decade-high
* RAM Ratings says up to 4.8 percent of Malaysian bond issuers it rates could default in 2009
* Malaysian Rating Corp says 3.6 percent of sukuk issuers it rates could default this year.
KUALA LUMPUR, July 22 (Reuters) - Corporate defaults in Malaysia, Southeast Asia's largest bond market, could hit the highest level this year since the 1997 financial crisis as firms struggle to repay borrowings, a rating agency said.
RAM Ratings, which says it rates about three quarters of corporate bonds in Malaysia worth 160 billion ringgit ($45.11 billion), said 4.8 percent of the issuers it rates could default in 2009 in the worse-case scenario, including Islamic bonds or sukuk.
That would mark the highest default level since the 8.8 percent recorded during the 1997/98 Asian crisis.
Exporters of hi-tech goods, retailers and builders are seen as among the most vulnerable, while rubber glove makers and food producers are believed to be more resilient sectors.
"We expect the level of default to be higher this year compared to 2008," said RAM Ratings Chief Executive Liza Mohd Noor.
"Weak demand, liquidity tightening, and quite a number of companies are not able to export and will need higher working capital and that's also not accessible," she said, referring to the dampening factors.
RAM's 4.8 percent forecast is the highest in its range of 2009 default estimates with the lowest seen at 1.8 percent, versus 1.05 percent in 2008.
Malaysia has the third largest-bond market in Asia ex-Japan after China and Korea, with more than 400 billion ringgit ($112.8 billion) of outstanding issuance, and is the world's biggest Islamic bond market.
Malaysia's economy is expected to shrink by as much as 5 percent in 2009, its biggest fall in a decade, due to weaker global demand for its tech and crude palm oil exports.
The government has announced a two-year economic boost comprising extra spending and loan guarantees worth 67 billion ringgit.
About 60 billion ringgit of bonds have been rated by RAM but not yet issued, including some from Gulf Cooperation Council countries, Korean and Japanese issuers, Liza said.
Malaysian Rating Corp (MARC), the country's other credit rating agency, said 3.6 percent of Islamic bond issuers it rates could default this year, compared with 2.7 percent last year and 5.1 percent in 2007.
The Islamic issuers rated by MARC as at January this year accounted for 44 billion ringgit of issuance.
"What we are seeing is a common trend of a more difficult economic and business environment and higher investor risk aversion that are affecting financial instruments globally," MARC chief executive Razlan Mohamed said.
"This will continue until there are clear signs of a recovery in the global, regional and domestic economies."
Many Malaysian sukuk are issued by government-linked entities such as top lenders Malayan Banking Bhd (MBBM.KL) and Bumiputra-Commerce BUCM.KL and state investment agency Terengganu Investment Authority.
Kuwait's Islamic firm Investment Dar TIDK.KW rocked sharia banking markets in May when it defaulted on a $100 million sukuk issue, the first such default for a major, public Islamic instrument in the region.
Since then many Gulf Arab banks have said they face potential write-downs due to the debt restructuring of Saudi family-owned conglomerates Saad [SAADG.UL] and Ahmad Hamad Algosaibi.
(For a timeline on Islamic banks' debt defaults, please double click on [ID:nKLR498049] ($1=3.547 Malaysian Ringgit)
(Click on [ID:nISLAMIC] for more Islamic finance stories and ISLAMIC for a speed guide) (Reporting by Liau Y-Sing; Editing by Kim Coghill)
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