Published on 17 Jul 2009
RAM Ratings has reaffirmed the respective long- and short-term ratings of Sabah Credit Corporation’s (Sabah Credit or the Corporation) RM500 million Commercial Papers/Medium-Term Notes (CP/MTN) Programme, at AA1 and P1, with a stable outlook. The ratings are supported by the Sabah State Government’s direct ownership of Sabah Credit via the Sabah State Ministry of Finance. Meanwhile, the Sabah Government’s backing is also evident from the subordination of the Corporation’s existing and future state government loans to the CP/MTN Programme, as well as a Letter of Support vis-à-vis the said debt facility. This is further demonstrated by the Sabah Government’s recent reinvestment of RM5 million of dividends received from Sabah Credit into the Corporation’s share capital.
In the meantime, the Corporation’s credit fundamentals continued improving during the period under review. Sabah Credit’s gross non-performing-loan ratio had ameliorated to 7.2% as at end-December 2008, from 8.9% a year earlier. As at the same date, personal lending accounted for 71% of its entire loan portfolio. We note that the Corporation has been expanding its personal lending in the last few years. This is viewed positively given that personal loans have been mainly extended to civil servants, whereby repayments are deducted through either the Sabah State Treasury or Biro Perkhidmatan Angkasa; this deduction mechanism has kept default rates low. In terms of profitability, Sabah Credit continued charting improvement with healthier respective returns on assets and equity of 3.2% and 28.1% as at end-December 2008 (end-December 2007: 2.8% and 22.2%).
In November 2007, Sabah Credit formed a joint venture with Kota Kinabalu Industrial Park Sdn Bhd, by setting up Bayview Sdn Bhd to jointly develop a residential project in Sepanggar Bay, Sabah. This joint venture will expose the Corporation to some construction-cost overrun and demand risk. However, Bayview intends to launch its property units gradually in view of the current subdued economic environment. In May 2009, it was reported that Sabah Credit may participate in a private hospital project undertaken by the Sabah Government; the Corporation will contribute a vacant building that will be converted into a private hospital. As this proposal is still at the preliminary stage, no further details are available at this juncture. “We view both projects to be outside Sabah Credit’s usual scope of business, although they are still state-related. We will maintain close monitoring of both developments and their impact on Sabah Credit,” notes Promod Dass, RAM Ratings’ Head of Financial Institution Ratings.
Media contact
Shireen Ng
(603) 7628 1021
shireen@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.
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Published by RAM Rating Services Berhad
© Copyright 2009 by RAM Ratings
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