Published on 21 Mar 2019.
RAM Ratings has assigned final AAA/Stable and AA2/Stable ratings to Zamarad Assets Berhad’s (the Issuer) Tranche 1 RM195.0 million Class A Sukuk and RM45.0 million Class B Sukuk, respectively. These represent the first issuance under Zamarad’s RM2.0 billion proposed Sukuk Murabahah Programme (the Programme) – RCE Marketing Sdn Bhd’s (RCEM) third foray into the debt capital market as a sponsor. As with its previous sponsored programme under Al Dzahab Assets Berhad (Al Dzahab), this issuance will be collateralised by personal financing (PF) facilities (extended to civil servants) originated by RCEM through its business partners. These facilities will be repaid primarily via non-discretionary salary deductions processed by the Accountant General’s Department and Angkatan Koperasi Kebangsaan Malaysia Berhad (better known as Angkasa), thereby materially reducing the transaction’s exposure to the borrower’s credit risks as long as the borrower remains in active service.
RAM’s cashflow assessment indicates that the underlying portfolio will be able to meet full and timely payment of financial obligations under Tranche 1 in respective AAA and AA2 stress scenarios for the Class A and Class B Sukuk. We have applied multiples of 4.00 and 3.00 times to the assumed base default under the respective stress scenarios. The RM195.0 million Class A Sukuk and RM45.0 million Class B Sukuk will be backed by receivables with an outstanding principal value of RM254.08 million based on portfolio cut-off date of 31 December 2018 and required cash reserves of RM5.95 million, translating into respective overcollateralisation (OC) ratios of 33.35% and 8.35%. Excluding the said cash reserves, the available cumulative OC of 5.87% based on the respective ratings of Class A and Class B Sukuk is higher than the required level of 3.75%, reflecting the excess collateral support. Material improvements in required OC compared to that under Al Dzahab’s issues are primarily a result of our revised default and prepayment assumptions in respect of the underlying portfolio.
The revision of RAM’s loss assumptions on Al Dzahab’s transactions follows our review of the Originator’s newer historical monthly static portfolios (between January 2014 and February 2018), and is premised on the better and consistent loss experience demonstrated by the newer static pools. This is in line with our observation of securitised portfolios under Al Dzahab and other rated transactions with similar receivables. These improvements had followed refinements to RCEM’s credit scorecard (launched in May 2013) that are more stringent and in line with applicable regulatory changes (e.g. a 10-year maximum loan tenure, and credit approval based on the borrowers' net debt-servicing capacity). RCEM has extended PF since 2003 and been an established originator and servicer since 2007. To date, a cumulative issue amount of RM1.49 billion of securities has been raised, backed by its portfolio of PF through two other sponsored vehicles. As at end-June 2018, RCEM’s receivables ageing profile was largely stable while average monthly collections for its PF facilities for the 12 months ending 30 June 2018 stood at 108% (for the preceding 12 months: 110%). These underscore RCEM’s good servicing experience and capability.
While the contracts of some staff members have been terminated under the new government, RCEM’s exposure to this segment is minor at around 0.4% of its entire securitised portfolio under Al Dzahab. We also derive comfort from the government’s assurance that it will not downsize the civil service and believe that the attrition rate of the sector will remain low. That said, the government is studying the consolidation of agencies and ministries to avoid overlapping functions. This could result in higher incidences of transfers and, in turn, possibly more administrative delays in deductions. Prepayments may also deviate from our expectations, in the event the government decides to extend the current retirement age. However, we view this as unlikely at this juncture as the government is still considering all options and has indicated that it will prioritise the improvement of the country’s fiscal position and minimising the deficit. We will review RCEM’s static pool performance from time to time and may adjust our assumptions accordingly.
Tan Han Nee
(603) 7628 1023
(603) 7628 1162
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Ratings on Zamarad Assets Berhad