Published on 19 Aug 2021.
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), owing to its confidence-sensitive role as the national financial guarantee insurer. The ratings further incorporate the Company’s robust capitalisation and liquidity positions.
Danajamin is undergoing a merger exercise with Bank Pembangunan Malaysia Berhad (Bank Pembangunan, rated AAA/Stable/P1). As the corporate exercise progresses, we will have more clarity on Danajamin’s strategic direction and role within the merged entity. Nonetheless, we do not expect Danajamin’s mandate to be diluted moving forward, while the enlarged entity’s strategic importance to the GoM is also anticipated to be well preserved.
In the last three years, new issuances have not been sufficient to offset redemptions, causing Danajamin’s financial guarantee insurance portfolio to almost halve to RM3.42 bil as at end-December 2020 (end-December 2019: RM4.22 bil). Increasingly challenging economic conditions amid the pandemic and unscheduled redemptions by issuers refinancing with bank loans have compounded the difficulty in growing the Company’s guarantee portfolio. Concentration risk is accentuated by its smaller portfolio of only 18 issuers. While some companies insured by Danajamin are increasingly under financial stress as a result of the tough operating landscape, the Company’s ample loss absorption buffers cushion heightened credit risk.
Danajamin’s capital ratio exceeded 500% as at end-December 2020, well in excess of the regulatory requirement of 130%. At the same time, its leverage ratio (measured as the notional value of total sum insured to total available capital) reduced to 1.9 times (end-December 2019: 2.4 times) as the Company’s guarantee portfolio continued to contract. Leverage is likely to remain low as the portfolio is not envisaged to grow significantly and may even shrink further in the near term. Danajamin’s large pool of liquid assets amounting to RM1.9 bil as at the same date covered slightly more than half the guaranteed sum outstanding.
Besides focusing on growing its financial guarantee insurance portfolio, Danajamin has been mandated by the GoM to administer and manage the Danajamin PRIHATIN Guarantee Scheme on behalf of Syarikat Jaminan Pembiayaan Perniagaan. The Company does not assume any credit risk under the scheme, that has been extended to end-2021, and will earn processing and monitoring fees. This also underscores Danajamin’s public policy role and the supportive relationship it enjoys with the GoM.
(603) 3385 2510
Wong Yin Ching, CFA
(603) 3385 2555
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
Ratings on Danajamin Nasional Berhad