Published on 30 Jan 2019.
RAM Ratings has assigned respective AA3/Stable and A1/Stable ratings to the Senior and Subordinated Sukuk under MNRB Holdings Berhad’s (MNRB or the Group) proposed RM320 million Sukuk Murabahah Programme. MNRB is a non-operating holding company with general reinsurance and retakaful, family retakaful, general takaful and family takaful businesses in Malaysia.
MNRB derives the bulk of its earnings and dividend income from Malaysian Reinsurance Berhad (Malaysian Re or the Reinsurer). Our assessment of MNRB considers Malaysian Re’s insurer financial strength rating of AA2/Stable/P1 and reflects the subordination of MNRB’s creditors to the policyholders and creditors of its operating subsidiaries. In addition to a 100%-stake in Malaysian Re, MNRB also wholly owns stakes in Takaful Ikhlas General Berhad (TIGB) and Takaful Ikhlas Family Berhad (TIFB). The one-notch differential between the ratings of the Senior and Subordinated Sukuk is indicative of the latter’s subordination in the right to payments and claims.
The Group’s operating subsidiaries have established market positions. Malaysian Re is the largest general reinsurer in Malaysia, with a 68% market share in 2017. TIGB and TIFB are mid-sized general and family takaful operators in Malaysia, ranking third and fourth by gross contributions, respectively. The Group benefits from earnings diversification given its reinsurance and takaful businesses, but the ability of MNRB’s subsidiaries to declare dividends has been constrained. Malaysian Re has recorded underwriting deficits due to adverse claims performance from its overseas segment, while higher reserving requirements for family takaful have led to operating losses. As a result, the Group’s earnings dipped into the red in fiscal 2016, before turning around in the next 2 years. MNRB’s cash reserves have also dwindled subsequent to capital injections into subsidiaries.
MNRB’s liquidity profile is expected to improve going forward, with steadier dividend income streams and plans to maintain cash reserves to support near to medium-term profit payments on the Sukuk. The Group’s pre-tax profit had recovered to RM193 million in fiscal 2018 (fiscal 2017: RM99 million) in the absence of one-off provisions from the family takaful segment, and as portfolio rebalancing initiatives at Malaysian Re translate into better claims experience.
At company-level, MNRB’s gearing and double-leverage ratios were a better 0.3 times and 1.3 times, respectively (end-March 2018: 0.5 and 1.4 times), following a RM400 million rights issuance in October 2018. This is well within RAM’s threshold for its ratings. Rights proceeds have been used to bolster the capitalisation of MNRB’s subsidiaries, placing them on a stronger footing for future growth. The capital adequacy ratios of the Group’s main subsidiaries are comfortably above the regulatory minimum of 130%. Issuance proceeds from the Proposed Sukuk will be used to refinance an existing RM320 million revolving credit facility; no further indebtedness is expected.
The ratings may be upgraded if there are significant and sustainable improvements in the credit profile of MNRB’s subsidiaries. Negative rating action will be warranted if MNRB’s gearing and double-leverage ratios exceed the rating thresholds of 0.5 times and 1.4 times, respectively, and/or if its company-level liquidity position significantly weakens. A downgrade may also be triggered by persistent deterioration in the underwriting results of its key subsidiaries.
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Published by RAM Rating Services Berhad
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Ratings on MNRB Holdings Berhad