Published on 17 Feb 2022.
RAM Ratings has assigned preliminary ratings of AAA/Stable and AA2/Stable to Zamarad Assets Berhad’s (Zamarad or the Issuer) Tranche 7 RM170 mil Class A Sukuk and RM40 mil Class B Sukuk, respectively. This is the seventh issuance under Zamarad’s RM2 bil Sukuk Murabahah Programme (the Programme), sponsored by RCE Marketing Sdn Bhd (RCEM or the Originator).
Tranche 7 Sukuk will include a Revolving Option (RO) which allows excess cash in the transaction to be utilised to purchase additional receivables from RCEM, subject to fulfilling certain conditions. Among others, all future purchases must meet a minimum weighted average portfolio profit rate, the rating outlook of the outstanding sukuk is either stable or positive and RAM’s assessment indicates that the exercise of the RO will have no rating impact on the outstanding Sukuk. Our current assessment assumes that the RO is not exercised throughout the sukuk’s tenure.
As with previous issuances, the Tranche 7 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 customers’ credit risks as long as they remain in active service.
Tranche 7 Sukuk will be backed by a portfolio of PF facilities with an outstanding principal of RM248.6 mil based on the cut-off date of 30 November 2021, and required cash reserves of RM4.9 mil at closing. Our cashflow assessment indicates that the resultant overcollateralisation ratios of 46.21% and 18.36% for the Class A and Class B Sukuk, respectively, commensurate with the AAA and AA2 ratings.
We have also reviewed the Originator’s historical monthly static portfolio performance from January 2017 to October 2021. The default performance deteriorated slightly and prepayments were higher and more volatile relative to the previous static portfolio (January 2014 to February 2018) but remained largely in line with our existing assumptions, i.e. a 0.09% monthly net default rate and respective high and low prepayment rates of 0.035% and 0.80% per month. The elevated prepayments were driven by promotional rebates offered by RCEM and disruptions caused by movement control orders (MCOs).
Similar trends were observed for securitised portfolios under Al Dzahab Assets Berhad (Al Dzahab) – another of RCEM’s sponsored vehicles – and all outstanding tranches under Zamarad, although the default and prepayment rates were lower than the static pool. As such, we have maintained the loss assumptions and stress scenarios presently employed in our rating analysis of all Al Dzahab and Zamarad tranches.
RCEM’s performance as Servicer remains satisfactory, given its more than 17 years of track record in the origination and servicing of PF facilities extended to civil servants. Through various funding vehicles, RCEM has cumulatively issued about RM3.2 bil of securities backed by its PF portfolio since 2004. RCEM fared well throughout the various MCOs, with continued stringent underwriting standards keeping asset quality relatively unimpacted. Payment deferrals affected less than 0.1% of RCEM’s outstanding PF facilities, and none of the affected facilities were included in any of its securitisation programmes. PF under moratorium is also not eligible for securitisation under Tranche 7 Sukuk.
L Nurisya Abdullah
(603) 3385 2529
Lim Chern Yit
(603) 3385 2528
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Ratings on Zamarad Assets Berhad