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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.


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

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 .

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