Published on 30 Jan 2020.
RAM Ratings has reaffirmed Credit Guarantee and Investment Facility’s (CGIF or the Fund) global, ASEAN and national Insurer Financial Strength ratings of gAAA/Stable/gP1, seaAAA/Stable/seaP1 and AAA/Stable/P1, respectively. The reaffirmation considers improvements in the Fund’s business traction, its conservative leverage and strong liquidity. The ratings also reflect CGIF’s policy mandate to develop the bond markets in the ASEAN region, the continued support of its capital contributors – the governments of China, Japan, Korea, the 10 ASEAN countries (collectively, ASEAN + 3) and the Asian Development Bank (ADB) – as well as the Fund’s strong operational ties with the development bank.
CGIF is a trust fund of ADB, established as part of the Asian Bond Markets Initiative with a mandate to develop and promote the integration of local-currency bond markets in the ASEAN+3 region. The Fund’s capital contributors have continued to demonstrate support for its cause, as evidenced by their subscription to a recent USD500 mil capital increase. To date, CGIF has received USD328 mil of USD449 mil committed. The balance will be received in stages by 2023.
CGIF issued guarantees for six new deals in 2018, a record number since its establishment. The Fund closed 2019 with USD491 mil of new guarantees issued over another six new deals, bringing its portfolio size to USD1.6 bil (end-December 2018: USD1.1 bil). Including deals closed in 2019 and additional capital contributions, our assessment indicates the Fund’s leverage (as defined in RAM’s Leverage Guidelines for Financial Guarantee Insurance Companies) is estimated at 1.0 times as at end-2019, comfortably below RAM’s threshold of 2.0 times for its ratings.
Although CGIF’s small portfolio renders it inherently susceptible to concentration risk, its guarantee portfolio is sufficiently diversified by sector. Geographically, the Fund has a large exposure to companies in Vietnam (42%) and Thailand (17%). Portfolio credit risks are mitigated by the profile of the obligors, most of whom are market leaders in their respective markets and have relatively satisfactory financial profiles.
CGIF’s liquidity position has stayed robust, supported by liquid assets of USD1.2 bil as at end-September 2019. Its quarterly stress tests indicate sufficient liquidity in the unlikely scenario of concurrent defaults by up to four of its largest issuers. To date, the Fund has not had a claim on any of its guarantees. With bond guarantees for Vietnamese corporates almost reaching the Fund’s internal risk appetite, CGIF will shift its focus to countries such as Indonesia and the Philippines as well as those with underdeveloped bond markets such as Brunei, Cambodia, Laos and Myanmar.
Negative rating triggers include an increase in leverage in excess of our threshold for the Fund’s current ratings, heightened portfolio credit risks or adverse claims development. CGIF’s inability to further expand its portfolio to a meaningful size over the medium to long term could also be a rating concern.
Hafiz Abdul Aziz
(603) 3385 2534
(603) 3385 2577
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Published by RAM Rating Services Berhad
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Ratings on Credit Guarantee and Investment Facility