Published on 06 May 2020.
RAM Ratings has revised the outlook on Zamarad Assets Berhad’s Tranche 1 Class B Sukuk Murabahah to positive from stable, while reaffirming the respective AAA and AA2 ratings of the Class A and Class B Sukuk. Concurrently, the AAA ratings of the Class A and Class B Sukuk under Tranches 3 to 5 of Al Dzahab Assets Berhad’s Sukuk Murabahah have also been reaffirmed. All the long-term ratings, except that of Zamarad’s Tranche 1 Class B Sukuk, have a stable outlook (see table below).
Al Dzahab and Zamarad (collectively, the Issuers) are special-purpose vehicles incorporated to undertake the securitisation of personal financing (PF) facilities originated through the business partners of RCE Marketing Sdn Bhd (RCEM).
Al Dzahab’s Tranche 3
Al Dzahab’s Tranche 4
Al Dzahab’s Tranche 5
Zamarad’s Tranche 1
Outlook revised to positive
OC = overcollateralisation (with cash)
^ As at 31 December 2019
Each tranche of the Sukuk is backed by its own discrete portfolio of PF receivables from civil servants. As these are repaid through non-discretionary salary deductions processed by two collection agents – Angkatan Koperasi Kebangsaan Malaysia Berhad (Angkasa) and EXP (Yayasan Ihsan Rakyat’s exclusive agent for its AG Code) – the transaction’s exposure to the credit risks of the borrowers is significantly reduced, as long as the borrowers remain in active service.
The positive outlook on Zamarad’s Tranche 1 Class B Notes reflects our expectation that its asset coverage will likely improve to a level that corresponds to a higher rating in the near term, given its current performance. All the reaffirmed ratings are premised on the available credit support, which is commensurate with the respective ratings. We observe similar default and prepayment trends for the underlying portfolios of all four tranches. The better-than-assumed default performance had strengthened the available collateral support, as seen in the higher OC ratios. During the review period, the cumulative net default rate of the rated tranches was lower than our base assumption while the monthly prepayment rate stayed within our high and low stressed assumptions, despite being slightly elevated of late.
Notwithstanding the Movement Control Order, in place since 18 March 2020, we do not expect a substantial shift in default rates, delinquency or collections going forward, in view of the employment security of civil servants and non-discretionary salary deduction. We highlight that issuances under Zamarad which are less seasoned than those under Al Dzahab will have thinner credit buffers to withstand a temporary deferment or reduction of monthly collections should such allowance be granted to its obligors. We will continue to follow developments closely and reassess the corresponding impact on the transaction, if necessary.
Notably, downside risks could stem from changes in regulatory policies and guidelines relating to salary deductions, which in turn may affect future delinquencies and the prepayment performance of the underlying receivables. Any significant relaxation of lending guidelines could also lead to a material variance in portfolio loss performance from the assumed loss rates. Meanwhile, the recent change in government may result in a higher incidence of civil servant transfers and, in turn, possibly more administrative delays in deductions. As details are still fluid at this juncture, we will closely monitor developments and revisit our assessment, if required.
Liew Kar Ling
(603) 3385 2586
(603) 3385 2577
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
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Rating Rationale: Zamarad’s Tranche 1
Rating Rationale: Al Dzahab’s Tranche 3
Rating Rationale: Al Dzahab’s Tranche 4
Rating Rationale: Al Dzahab’s Tranche 5
Ratings on Zamarad Assets Berhad