Published on 30 Aug 2019.
RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Berhad’s RM2.11 bil Sukuk Musyarakah Islamic residential mortgage-backed securities (2007/2027) (CMBS 2007-1-i). Cagamas MBS is a limited-purpose entity incorporated for the purpose of securitising government staff housing loans and government staff Islamic home-financing facilities (GSIHFs).
The reaffirmation of the rating is based on CMBS 2007-1-i’s superior collateral coverage – its overcollateralisation (OC) ratio had risen to 70.3% as at the reporting date of 31 July 2018 (31 July 2017 68.4%), due to the portfolio’s stable performance. The OC ratio is backed by RM1.14 bil in mortgages (by principal outstanding) and RM311.73 mil in cash and permitted investments, against total outstanding sukuk of RM855 mil. To date, RM610 mil remain outstanding following the redemption of the RM245 mil Tranche 5 on May 2019. The significant credit support provides a more than sufficient buffer against default and prepayment levels under an AAA stressed scenario as well as negative variance on investment returns. Further, the rating is supported by the GSIHFs’ non-discretionary repayment structure, which reduces exposure to the credit risk of borrowers.
During the review period, the transaction continued to record a net default performance that was better than that of our base case expectation – the cumulative net default rate as at end-July 2018 stood at 0.55% against our assumed 6.34%. Separately, prepayments were lower than our assumed levels, with the cumulative prepayment rate at 11.92% compared to the assumed 22.60%. The option to partially redeem the last two tranches of the sukuk, although permitted, has not been exercised, as cashflow arising from excess prepayments has yet to meet the projected amounts, despite having fulfilled the minimum threshold of RM90 mil in the Collections Account. As at 31 July 2018, the portfolio of GSIHFs comprised 20,368 accounts, with an average outstanding balance of RM56,160. The weighted-average term to maturity of the CMBS 2007-1-i pool stood at 10.43 years as at the same date.
Under the Budget 2019, civil servants (grade 54 and below) and pensioners received a one-off special payment of RM500 and RM250, respectively, while pensioners receiving pensions of less than RM1,000 were paid an additional one-off assistance sum of RM500. In addition, the government introduced the Bantuan Sara Hidup programme early this year – a tiered cash hand-out scheme depending on the income level of eligible person. That said, we observed no significant impact on current prepayment levels, likely due to the subsidised profit rates of GSIHFs as well as persisting inflationary pressures and affordability issues. While the new administration has provided an assurance that the civil service will not be downsized, there had been proposals to reshuffle and reassign civil servants at all levels, which could result in higher incidences of transfers and, in turn, possibly more administrative delays in deductions. During the review period, the respective delinquency profile of portfolios under Cagamas MBS Berhad were generally stable.
Tan Han Nee
(603) 3385 2529
(603) 3385 2577
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Ratings on Cagamas MBS Berhad CMBS 2007-1