Published on 01 Sep 2022.
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.
Bank Pembangunan Malaysia Berhad (BPMB or the Group, rated AAA/Stable/P1) acquired Danajamin in November 2021 following a government-initiated exercise to streamline the public policy mandates of development financial institutions. The two entities have since commenced an amalgamation exercise via a business transfer scheme pursuant to Section 100 of the Financial Services Act 2013. Pursuant to the amalgamation exercise, Danajamin’s assets and liabilities, including its financial guarantee portfolio but excluding the Company’s sukuk and cash set aside for repayment, will be transferred to BPMB. The transaction is anticipated to be completed in 4Q 2022, subject to the receipt of regulatory approvals, including a vesting order from the High Court.
The ratings reflect our view of a very high likelihood that Danajamin will continue to receive extraordinary support from the Government of Malaysia, directly or indirectly via its parent, BPMB, owing to the Company’s confidence-sensitive role as the national financial guarantee insurer. The Company’s robust capitalisation and liquidity position is also a rating positive.
Danajamin has RM500 million of subordinated bonds outstanding, callable on 6 October 2022. Funds equivalent to the full principal and half-year profit payments have already been set aside to meet the upcoming sum due. The Company will utilise its deposits equivalent to the full principal and half-year profit payment towards fully redeeming the outstanding sukuk on 6 October 2022 when Danajamin can exercise its call option.
Based on information available up to 31 May 2022, total scheduled redemptions continued to outstrip YTD issuances, leading to further contraction in its guarantee portfolio. As at end-December 2021, this sum stood at RM2.57 bil, a 25% decline from RM3.42 bil a year earlier. Concentration risk is accentuated by the Company’s smaller portfolio of only 14 obligors. The low replenishment of its guarantee portfolio is further compounded by the slow traction of its other product offerings.
Danajamin’s capital ratio exceeded 500% as at end-December 2021, well in excess of the regulatory requirement of 130%. Its leverage ratio on the same date (measured as the notional value of total sum insured to total available capital) had reduced to 1.3 times (end-December 2020: 1.9 times) as the Company’s guarantee portfolio continued to contract. Danajamin’s exceptional liquidity position can comfortably meet potential claims.
Chan Yin Huei
(603) 3385 2298
Wong Yin Ching, CFA
(603) 3385 2555
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Ratings on Danajamin Nasional Berhad