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RAM Ratings assigns P1 rating to Sabah Credit Corporation’s proposed Islamic CP

Published on 19 Mar 2021.

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RAM Ratings has assigned a short-term rating of P1 to Sabah Credit Corporation’s (SCC or the Corporation) proposed RM1.75 bil Islamic Commercial Papers Programme. Concurrently, we have reaffirmed the AA1/Stable/P1 ratings of SCC’s outstanding sukuk instruments (see table below). The reaffirmation is premised on our expectation of ready financial support from the Sabah state government – which wholly owns SCC – if required. 

As at end-September 2020, SCC’s gross impaired financing (GIF) ratio was a higher 4.3% (end-December 2019: 3.1%), largely due to a three-month deferment of repayments on personal financing granted to state civil servants. Unlike banks, financing from SCC placed under moratorium remains subject to the three-stage provisioning model of Malaysian Financial Reporting Standard 9. This caused an uptick in impaired financing, mainly attributable to facilities already one or two months in arrears before the payment holiday took effect. Excluding financing facilities under moratorium that had become impaired for this technical reason but have since resumed normal payment, SCC’s GIF ratio would have been a lower 3.7%.    

We anticipate further asset quality slippages to be contained, supported by non-discretionary direct salary deductions of its civil servant-centric personal financing base, where the degree of job security is high. The Corporation’s profitability and gearing levels remain comfortable. Its annualised return on assets came in at 3.2% in 1H FY Dec 2020 (FY Dec 2019 3.2%) while gearing as at end-June 2020 was 3.5 times (end-December 2019: 3.7 times).

Table: SCC’s issue ratings

Instrument

Rating(s)

  1. RM1.75 billion Islamic Commercial Papers Programme (2014/2021) and RM3.5 billion Islamic Medium-Term Notes Programme (2014/2039)*
  2. RM1 billion Islamic Medium-Term Notes Programme (2011/2031)
  3. Proposed RM1.75 billion Islamic Commercial Papers Programme

AA1/Stable/P1

AA1/Stable

P1

* Subject to a joint limit of RM3.5 billion

 

 

Analytical contact
Jeremy Noel Paul 
(603) 3385 2556
jeremynp@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2021 by RAM Rating Services Berhad



Rating Rationale

Ratings on Sabah Credit Corporation

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