Published on 17 Jun 2020.
RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Berhad’s RM2.11 bil Sukuk Musyarakah Islamic residential mortgage-backed securities (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 (GSIHF). The repayment of the GSIHF stems from non-discretionary direct deductions of civil servant salaries and pensions, which reduce exposure to the borrowers’ credit risks.
The reaffirmation of the rating is premised on CMBS 2007-1-i’s strong and improved collateral support as reflected by a higher overcollateralisation (OC) ratio, attributed to the securitised portfolio’s better than expected loss performance. As at end-October 2019, the RM610 mil CMBS 2007-1-i was backed by a RM982.19 mil portfolio of securitised GSIHF, along with a cash balance and permitted investments totalling RM248.0 mil. This lifted the OC ratio to 101.67% (end-July 2018: 70.25%), which affords ample protection against the risk of prepayment and defaults on the underlying portfolio in an “AAA” stressed scenario, as well as negative variance on investment returns. The cumulative prepayment rate averaged below our base-case assumption during the review period, but was well compensated by the better than assumed default performance.
Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) – the servicer of the portfolio – announced on 8 April that it would not grant borrowers any financing moratorium, notwithstanding the six-month deferment of loan payments offered by banks to individuals and SMEs to minimise Covid-19-induced disruptions. We also understand that LPPSA has not allowed any request from borrowers to defer or restructure financing to date. Any form of relief, if granted, could affect the portfolio collection or delinquency rates. Our sensitivity analysis indicates, however, that the remaining principal and profit obligations under this transaction will be fully met, even in a six-month moratorium scenario. While the recent change in government is not expected to result in a downsizing of the civil servant staff force, the reshuffling and reassignment of civil servants could see higher incidences of transfers. This may possibly lead to increased administrative delays in deductions. We will continue to monitor developments closely and reassess the corresponding impact on the transaction, if required.
Liew Kar Ling
(603) 3385 2586
(603) 3385 2577
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Ratings on Cagamas MBS Berhad CMBS 2007-1