Published on 18 Sep 2020.
RAM Ratings has reaffirmed the AAA ratings of the Class A and Class B Notes under Al Dzahab Assets Berhad’s (the Issuer) respective Tranches 1 and 2 Sukuk Murabahah (collectively, the Sukuk) (see table below). The ratings carry a stable outlook. Al Dzahab is a special-purpose vehicle, incorporated to undertake the securitisation of personal-financing (PF) facilities originated through the business partners of RCE Marketing Sdn Bhd (RCEM or the Originator).
Each tranche of the Sukuk is backed by its own respective discrete portfolios of PF receivables from civil servants. The receivables are paid through non-discretionary salary deductions processed by the Accountant General’s Department and Angkatan Koperasi Kebangsaan Malaysia Berhad (better known as Angkasa), thus reducing the transaction’s exposure to the customers’ credit risks, as long as they are still in active service.
^ As at end-May 2020
The reaffirmation of the ratings is supported by the overcollateralisation for the rated Sukuk, which remains commensurate with an “AAA” rating. The loss performance of the underlying pools stayed below our assumptions, contributing to higher asset covers for the respective tranches. This was also observed for other tranches under Al Dzahab and Zamarad Assets Berhad – the Originator’s most recent securitisation vehicle.
The default or delinquency rates of Tranches 1 and 2 had not deteriorated during the Movement Control Order period, attributable to the job security enjoyed by civil servants and the non-discretionary salary deductions. In this regard, non-bank financiers like RCEM will only grant customers repayment moratoriums on a case-by-case basis. That said, management has indicated that less than 0.4% of RCEM’s PF facilities have been placed under moratorium and none of the customers are part of the Originator’s securitised portfolio.
Overall, monthly prepayment rates were within our expectations despite having increased year on year, spiking in January 2020 before easing back to the historical average in the following months. This was likely a result of customers leveraging further via refinancing, given the lower rate in view of competition in the market. Going forward, prepayment levels are anticipated to trend slightly higher as competition intensifies and profit rates decline, albeit remaining within our stressed scenarios.
Although still a remote possibility at this juncture, downside risks could arise from changes in guidelines on salary deductions or regulatory policies, which may affect future delinquency rates and the prepayment performance of the underlying receivables. While material downsizing is not expected for the foreseeable future, the recent change in government might lead to a higher incidence of civil servant transfers and, in turn, more administrative delays in salary deductions.
Lim Chern Yit
(603) 3385 2528
(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: Al Dzahab Assets Berhad Tranche 1
Rating Rationale: Al Dzahab Assets Berhad Tranche 2
Ratings on Al Dzahab Assets Berhad