Published on 04 Jul 2019.
RAM Ratings has reaffirmed Danajamin Nasional Berhad’s (Danajamin or the Company) AAA/Stable/P1 insurer financial strength ratings (IFS). The respective AAA/Stable and AA1/Stable ratings of the Senior and Subordinated Sukuk under the Company’s Sukuk Murabahah Programme of up to RM2.0 bil have also been reaffirmed. The rating of the Subordinated Sukuk is one notch below Danajamin’s long-term IFS rating to reflect its subordination to the Company’s senior obligations.
The ratings reflect our view that Danajamin will continue to benefit from extraordinary support from the Government of Malaysia (GoM), given its confidence-sensitive role as the national financial guarantee insurer. Jointly owned by the Minister of Finance Incorporated and Bank Negara Malaysia via Credit Guarantee Corporation Malaysia Berhad, Danajamin was established to stimulate and deepen the domestic bond and sukuk market by facilitating funding access for viable companies. Reflective of the GoM’s commitment, the Company has access to RM1 bil of capital on call, in addition to RM1 bil in paid-up capital.
Danajamin’s ratings also consider its robust capitalisation, strong liquidity and leverage (measured as the notional value of the total sum insured to total available capital). With a smaller outstanding guaranteed portfolio of RM5.0 bil, the Company’s leverage ratio was a lower 2.8 times as at end-March 2019 (end-December 2017: RM6.1 bil and 3.7 times, respectively). Its capital ratio continues to exceed 400%, well above the regulatory minimum of 130%. Meanwhile, Danajamin’s liquid assets of RM1.7 bil as at end-March 2019 adequately support liquidity needs arising from potential claims.
Portfolio and premium growth are expected to remain limited by sizeable upcoming scheduled redemptions. The Company’s plans to broaden its client base include the provision of investor guarantees and guarantees for loans/financing facilities, but these products are still at preliminary stages and will take time to gain meaningful traction. Danajamin’s small portfolio of 23 issuers results in obligor and sector concentration and its mandate naturally entails higher credit risks. Although there has been no guarantee calls since inception, downward portfolio credit migration or future defaults cannot be ruled out. Danajamin’s slightly higher pre-tax profit of RM117.6 mil in FY Dec 2018 was supported by better investment income.
Negative rating triggers include a reduced likelihood of extraordinary support from the GoM, adverse claims and significant deterioration in leverage and regulatory capital. Danajamin’s inability to achieve meaningful growth of its insured portfolio and underwriting premiums over the longer term could also put pressure on the ratings.
Ann Kimberly Lee
(603) 3385 2533
(603) 3385 2577
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Ratings on Danajamin Nasional Berhad