Published on 14 Aug 2020.
RAM Ratings has reaffirmed Danajamin Nasional Berhad’s (Danajamin or the Company) insurer financial strength ratings (IFS) at AAA/Stable/P1. The respective AAA/Stable and AA1/Stable ratings of the Senior and Subordinated Sukuk under the Company’s Sukuk Murabahah Programme of up to RM2.0 bil have also been reaffirmed. The Subordinated Sukuk’s rating has been notched down from Danajamin’s long-term IFS rating to reflect its subordination to the Company’s senior obligations.
The ratings reflect our view that Danajamin will continue to benefit from a very high likelihood of extraordinary support from the Government of Malaysia (GoM), given its role to stimulate and deepen the Malaysian bond and sukuk market. In addition, the ratings are also premised on Danajamin’s still-sound financial metrics despite the occurrence of a RM105 mil issuer default – the Company’s first – in early 2020.
The Company’s portfolio growth has been tempered by large scheduled and unscheduled redemptions as well as the smaller size of pipeline deals over the last few years. Danajamin’s small portfolio of 23 issuers results in obligor concentration risk, which is amplified by the Company’s mandate to facilitate funding access for viable companies with a weaker credit standing. In view of the ramifications of the pandemic and the recent slump in oil prices, companies insured under Danajamin’s portfolio might experience heightened credit risk.
On this note, Danajamin’s ratings also consider its strong capitalisation, liquidity and leverage (measured as the notional value of total sum insured to total available capital). These metrics are envisaged to stay manageable despite possibly an increase in defaults. With a smaller outstanding guarantee portfolio of RM4.2 bil, the Company’s leverage ratio eased to 2.4 times as at end-December 2019 (end-December 2018: RM4.9 bil and 2.8 times, respectively). Its capital ratio continues to exceed 400%, well above the regulatory minimum of 130%. Meanwhile, Danajamin’s large pool of liquid assets amounting to RM1.8 bil as at end-December 2019 will comfortably support liquidity needs arising from potential claims.
Danajamin’s pre-tax profit was impacted by KMCOB Capital Bhd’s default, coming in at a significantly lower RM13 mil in FY Dec 2019 (FY December 2018: RM118 mil). Moving forward, the Company will focus its efforts on the new RM50 bil Danajamin PRIHATIN Guarantee Scheme which it has been entrusted to administer on behalf of Syarikat Jaminan Pembiayaan Perniagaan (wholly owned by the Ministry of Finance) to assist companies affected by the COVID-19 crisis. This is viewed positively, given the potential upside to its revenue without having to take on any additional credit risk. The scheme also further underscores the public policy role that Danajamin plays and the supportive relationship that it enjoys with the GoM.
Wong Yin Ching
(603) 3385 2555
(603) 3385 2577
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Ratings on Danajamin Nasional Berhad