Published on 10 Aug 2020.
RAM Ratings has assigned preliminary ratings of AAA/Stable and AA2/Stable to Zamarad Assets Berhad’s (the Issuer) Tranche 4 RM95 mil Class A Sukuk and RM25 mil Class B Sukuk, respectively. The Tranche 4 Sukuk is the fourth issuance under Zamarad’s RM2 bil Sukuk Murabahah Programme (the Programme).
The Programme is RCE Marketing Sdn Bhd’s (RCEM) fifth debt capital market programme. As with previous issuances, the Tranche 4 Sukuk will be collateralised by personal financing (PF) facilities extended to civil servants, originated by RCEM through its business partners. These will be repaid primarily via non-discretionary salary deductions processed by Angkatan Koperasi Kebangsaan Malaysia Berhad and EXP Payment Sdn Bhd (the exclusive agent for Yayasan Ihsan Rakyat’s Accountant General’s Department of Malaysia Code). The salary-deduction feature coupled with the job security enjoyed by civil servants reduce the transaction’s exposure to the customer’s credit risks as long as the customer remains in active service.
The Tranche 4 Sukuk will be backed by a provisional portfolio of PF facilities with an outstanding principal value of RM122.8 mil, based on the cut-off date of 31 May 2020, and cash reserves of RM2.2 mil at closing. The provisional pool provides for overcollateralisation ratios of 29.29% and 2.36% for the Class A and Class B Sukuk, respectively, which are commensurate with the AAA and AA2 ratings. In our cash flow simulation, we have applied similar loss assumptions and stress scenarios to that employed in the last three tranches issued by Zamarad. For more information, please refer to our media release on the Tranche 1 Sukuk here.
RCEM’s performance as the Servicer remains satisfactory, given its more than 15 years of experience. Through various funding vehicles, RCEM has issued a cumulative of about RM2.8 bil of securities backed by its PF portfolio since 2004. To date, the performances of the underlying collateral for all outstanding tranches under Al Dzahab Assets Berhad and Zamarad have been satisfactory. Notwithstanding the Movement Control Order, in place since 18 March 2020, RCEM had fared well and was not materially affected in terms of asset quality as less than 0.4% of its outstanding PF is under repayment moratorium. We note that none of the PF under repayment moratorium are part of RCEM’s securitised programmes.
Downside risks could however stem from changes in regulations, policies or guidelines relating to salary deductions, which in turn may affect future delinquencies and/or prepayment performance of PF receivables. Any material changes to government’s 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 salary deductions.
Liew Kar Ling
(603) 3385 2586
(603) 3385 2577
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