Moody’s assigns definitive A3 rating for Malaysia’s sovereign sukuk

Singapore, July 06, 2011 -- Moody's Investors Service has assigned a

definitive foreign currency rating of A3 to the securities under

Malaysia's U.S. dollar-denominated sovereign sukuk.

RATINGS RATIONALE

Moody's definitive rating for these debt obligations confirms the

provisional rating assigned on June 22, 2011. Moody's rating rationale

was set out in a press release published on the same day.

Malaysia's wakala sukuk issuance was divided into two tranches: US$1.2

billion due 2016 and US$800,000 due 2021. In Moody's opinion, these

payment obligations are pari passu with other senior, unsecured debt

issuances of the Government of Malaysia and thus justify a rating at the

same level.

The Malaysian economy has grown robustly during the recovery from the

global financial crisis, supported notably by healthy private consumption

and government stimulus. In addition, the pickup in growth across the

region and higher commodity prices have bolstered Malaysia's large export

sector. Yet inflation remains relatively low and such pressures are being

kept in check by central bank policy actions. Despite headwinds from

supply-chain disruptions from the March 2011 Japanese earthquake and from

a moderation in Chinese demand, Malaysia's growth will continue to be

supported in the near-term by domestic demand, particularly as investment

spending accelerates under the government's Economic Transformation

Programme.

Malaysia's sovereign rating is anchored by the sustained strength in the

country's strong external payments position, high savings rates, and

deep onshore capital markets. Official foreign exchange reserves stand at

US$133.2 billion, or more than four-times residual short-term external

debt, as of June 15, 2011. In addition, the rating is supported by strong

and well-managed corporate and banking sectors, which poses only marginal

contingent liabilities to the government's balance sheet.

However, structural features of the Malaysia's fiscal framework may put

pressures on the long-term sustainability of public finances. The

government continues to be reliant on commodity revenues, while

expenditure growth has been driven by a ballooning of the subsidy bill.

Tax and subsidy reforms will be needed to better underpin Malaysia's

sovereign credit fundamentals relative to its peers.

The principal methodology used in this rating was Sovereign Bond Ratings

published in September 2008. Please see the Credit Policy page on

www.moodys.com for a copy of this methodology .