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RAM Ratings reaffirms Malaysia Debt Ventures’ AA3 ratings
Published on 31 Oct 2022.
RAM Ratings has reaffirmed Malaysia Debt Ventures Berhad’s (MDV or the Company) AA3/Stable/P1 corporate credit ratings, alongside the same ratings of its RM2 bil Conventional and Islamic Commercial Papers/Medium-Term Notes Programmes.
The ratings incorporate our expectation of strong support from the Government of Malaysia. MDV is a technology financier wholly owned by the government through the Minister of Finance (Incorporated) and the Federal Land Commissioner.
MDV is deemed highly strategic to the government given its importance to the nation’s agenda of nurturing firms in the technology sector, although the Company is not the only entity spearheading this initiative. Established in 2002, MDV’s mandate is to address the funding needs of technology companies – particularly small and medium-size enterprises – that are unserved or underserved by commercial banks. The Company’s strong relationship with the government has been evident since its inception. Support has been demonstrated through the partial conversion of MDV’s debt to equity, government guarantees, sukuk funding cost subsidies and being entrusted to run government financing programmes to develop the technology sector.
The credit profile of MDV’s financing book, while remaining weak in view of its developmental role, has improved significantly in recent years. More selective underwriting and reduced exposure to lumpy accounts however have diminished its financing portfolio. MDV’s gross impaired financing (GIF) ratio nevertheless abated to 12.3% as at end-December 2021 (end-December 2020: 18.8%) on the back of writeoffs, recoveries and relief measures. The Company’s credit cost ratio rose to 1.9% in FY Dec 2021 (FY Dec 2020: 1.3%), driven by the deterioration of two sizeable but still unimpaired accounts and additional pre-emptive provisioning. GIF coverage was a stronger 89% as at end-December 2021 (end-December 2020: 64%).
Pre-profit came in slightly higher at RM7.2 mil in FY Dec 2021 (FY Dec 2020: RM6.3 mil) chiefly owing to one-off unrealised fair value gains from MDV’s investment in start-up funds. This more than offset weaker financing income and higher impairment expenses incurred during the year. The Company’s gearing of 4.7 times as at end-December 2021 was manageable vis-à-vis its risk profile. Following its successful appeal against a recent amendment to the Income Tax Act 1967 relating to unutilised tax losses, MDV will be reversing RM30 mil of its RM80 mil written-down deferred tax assets this year. This would lift its net profit and improve gearing to a pro forma 4.2 times.
Analytical contacts
Jeremy Noel Paul
03 3385 2556
jeremynp@ram.com.my
Wong Yin Ching, CFA
03 3385 2555
yinching@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
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