The Role of Credit Rating Agencies in Malaysia

Badariah Sahamid, (2002) The Role of Credit Rating Agencies in Malaysia. Journal of Malaysian and Comparative Law, 29 (1).

Abstract

The existence of mandatory credit rating in Malaysia is symptomatic of an emerging debt market where inverstore are less sophisticated and disclosure standarts are low. This is also consistent with the merit-based regime which favours a paternalistic role to market regulation. However, the securities market is moving in stages to a disclosure based sytem. The Capital Market Masterplan has recommended the eventual removal of the mandatory requirement for credit ratings on corporate debt instrument. This would mean that corporate issuers would be free to choose whether or not to submit debt instruments to a rating, which is the situation in U.S.A. The recommended move will certainly impact on the existing as well as future role of credit rating agencies in Malaysia. When the regional economic turmoil of 1997 resulted in many corporations debt being downgraded, questions were raised as to the competency or limitations of credit rating agencies to predict the competency or limitations of credit rating agencies to predict the economic downturn. More recently, when Enron and World Com. Inc. collapsed, the American rating agencies, notably Standardt and Fitch’s Ratings were shown to alert the market of a rating downgrade. This has resulted, and raises in a loss of confidence in the credit rating agencies ability to to predict default, and raises questions as to the competencies and role of credit rating agencies. In the light of the evolving role of credit rating agencies in Malaysia, this article looks at the nature of credit rating and its functions and raisese selected legal issuse, in particualr the liability of credit rating agencies in the event of a negligent assignation of a particular rating. In this respect, comparisons would be drawn to American authorities.

The Role of Credit Rating Agencies in Malaysia

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Abstract