KUALA LUMPUR (Oct 17): Singapore’s Temasek Holdings and Saudi Arabia’s Public Investment Fund (PIF) were pointed out by Moody’s Ratings as having the strongest intrinsic credit metrics with excellent liquidity and diversified investment portfolios among the 11 government-owned investment holding companies (IHC) it rated.

Intrinsic credit quality is a reflection of the IHC’s standalone credit strength without extraordinary government support, according to Moody’s.

Meanwhile, the rating agency highlighted that Khazanah Nasional Bhd’s (A3 stable) intrinsic credit quality is supported by stable earnings from its key investee companies, which have leading market positions and strong business profiles in Malaysia.

“Since adopting an active investment strategy in 2004, Khazanah has grown the net asset value of its portfolio at a compound annual growth rate of around 5%. It has achieved this growth while maintaining prudent financial policies which include a public leverage target. 

“We expect Khazanah's market value-based leverage to remain at 30-35% over the next few years,” it said.

However, Khazanah is also among five IHCs that exhibit weak liquidity with insufficient internal cash sources to meet their cash needs over the next 12-18 months, said Moody’s, as large short-term debts get rolled over each year.

“Nonetheless, liquidity risk for these companies is mitigated by a demonstrated track record of strong funding access, including from state-owned banks in their respective countries. These companies have also demonstrated their access to domestic and international capital markets during periods of market volatility. And they can choose to operate with lower cash balances given their strong access to funding,” noted Moody’s.

Moody’s also pointed out that Khazanah and PIF have the highest portion of publicly listed assets among the 11 IHCs rated by Moody’s.

According to the rating agency, IHCs with a higher proportion of public listed investments tend to provide stakeholders with a clearer, more immediate picture of the investment portfolio’s performance due to regulatory requirements and the availability of real-time valuation data.

Those with a higher proportion of listed assets tend to have greater capital raising ability.

“This includes access to equity capital in the form of secondary offerings and rights issuances at listed investee companies. Listed assets are generally more liquid with underlying value pegged to market value, while unlisted assets are typically less liquid with underlying value potentially pegged at historical book value, which may be different from current realisable value,” explained Moody’s.

As for Temasek, Moody’s said its investment portfolio transparency provides stakeholders with better visibility over market values and dividend income from investments, while the diversification in geography of its investment portfolio reduces exposure to localised economic downturns.

Coupled with the above, with a net cash position and low leverage, Temasek is one of the few global entities maintaining such financial health.

“Leverage and interest coverage, liquidity in the form of internal cash reserves, and portfolio composition in terms of sector and geographic diversification are key determinants of credit strength in the sector,” it added.