S&P rates Penerbangan Malaysia notes A-

Standard & Poor's said it assigned an A- long-term senior unsecured foreign currency debt rating to Penerbangan Malaysia Bhd.'s proposed $1 billion guaranteed notes.

Penerbangan Malaysia is 100% owned by Khazanah Nasional Bhd., the investment holding arm of the government of Malaysia (A-/Stable/A-2). Penerbangan will use most of the proceeds for aircraft acquisition, debt refinancing and working capital.

S&P said the A- rating on the proposed notes reflects the direct, irrevocable and unconditional guarantee by the government of Malaysia, the ratings of which are supported by the country's dynamic economy, strong external liquidity and public sector net external creditor position and constrained by general government net debt and substantial contingent liabilities.

Malaysia has consistently produced current account surpluses since 1998, averaging 9.5% of current account receipts. These surpluses, coupled with increased foreign direct investments, are bolstering the central bank's foreign reserves, which were projected to reach 474% of short-term external debt at the end of 2005, up from 372% in 2004, the agency said.

Seven successive years of fiscal deficits, however, have raised net general government debt to 40% of 2005 GDP from a historical low of 20% in 1996.

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