Published on 28 Oct 2020.
RAM Ratings has assigned preliminary ratings of AAA/Stable and AA2/Stable to Zamarad Assets Berhad’s (the Issuer) Tranche 5 RM85 mil Class A Sukuk and RM15 mil Class B Sukuk, respectively. The Tranche 5 Sukuk is the fifth issuance under Zamarad’s RM2 bil Sukuk Murabahah Programme (the Programme), sponsored by RCE Marketing Sdn Bhd (RCEM).
As with previous issuances, the Tranche 5 Sukuk will be collateralised by personal financing (PF) facilities extended to civil servants, originated by RCEM through its business partners. The PF facilities will be repaid 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 historically low attrition rate of civil servants reduces the transaction’s exposure to the customer’s credit risks as long as he remains in active service.
The Tranche 5 Sukuk will be backed by a portfolio of PF facilities with an outstanding principal value of RM103.8 mil based on the cut-off date of 31 August 2020, and required cash reserves of RM1.7 mil at closing. Our cashflow assessment indicates that the resultant overcollateralisation ratios of 22.18% and 3.85% for the Class A Sukuk and Class B Sukuk, respectively, are commensurate with the AAA and AA2 ratings. We have applied loss assumptions and stress scenarios similar to those employed for the last four tranches issued by Zamarad. Notably, the default experiences of all the issued tranches have been below RAM’s expectations to date, although with slightly elevated prepayment levels.
RCEM’s performance as the Servicer remains satisfactory, given its more than 15 years of experience. Through various funding vehicles, RCEM has cumulatively raised about RM2.9 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, effective 18 March to 4 May 2020, RCEM had fared well and was not materially affected in terms of asset quality as repayments in respect of less than 0.4% of its outstanding PF had been deferred. We note that none of the PF facilities under moratorium are part of RCEM’s securitised programmes.
While the portfolio’s credit loss mainly depends on attrition rates, downside risks could also stem from changes in regulations, policies or guidelines relating to salary deductions, which may affect future delinquencies and/or the prepayment performance of PF receivables. Any material amendments to the government’s financing guidelines could also lead to a marked variance in portfolio loss performance from assumed loss rates. Meanwhile, any change in government may result in a higher incidence of civil servant transfers and, in turn, possibly more administrative delays in salary deductions. That said, we have yet to observe any material hiccups in salary deductions affecting portfolio performance to date.
Teoh Tze Yit
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