Published on 13 Dec 2022.
RAM Ratings has reaffirmed Credit Guarantee and Investment Facility’s (CGIF or the Fund) AAA/Stable/P1 insurer financial strength ratings on the global, ASEAN and national scales.
The reaffirmation is premised on CGIF’s policy mandate to develop bond markets in Asia and the sponsorship and continued support of its capital contributors – the governments of China, Japan, Korea and the 10 ASEAN countries (collectively, ASEAN+3) as well as the Asian Development Bank.
CGIF’s financial profile remains solid despite a default by KNM Group Berhad in late 2021, the first in its portfolio since inception. The Fund had received reinsurance claim amounting to USD21.2 mil and set aside an impairment allowance of USD10 mil for this exposure as at end-December 2021, given earlier expectations of recovery through KNM’s asset disposal plan. This proposed divestment was recently called off, which may necessitate additional provisioning in 4Q FY Dec 2022. That said, we are of the view that CGIF’s overall financial profile is anticipated to remain intact in light of its robust capitalisation and liquidity. CGIF’s leverage was still sound at a low 1.2 times as at end-June 2022, well within the 2.0 time-limit for its ratings. The Fund continues to maintain a conservative investment appetite while keeping its liquidity profile robust. Highly liquid assets of USD1.2 bil provide a large buffer to meet any potential claims.
In line with the economic recovery in most markets, CGIF’s business traction has gradually picked up. The Fund’s outstanding portfolio stood at USD2.0 bil as at end-June 2022 (end-December 2020: USD1.9 bil). The internal risk rating of its overall portfolio has improved, primarily underpinned by the onboarding of better credits even as some existing bonds were downgraded.
A modest portfolio size and monoline focus expose CGIF to some degree of concentration risk. The Fund is sufficiently diversified by sector. Although it has relatively large exposures to Vietnam (25%) and Thailand (22%), geographical concentration has reduced in recent years. Concentration risks are moderated by the Fund’s prudential limits on sector, industry and country exposures. Risk assessments have been enhanced while credit surveillance of CGIF’s insured portfolio remains frequent. We expect the Fund’s financial metrics to stay healthy and commensurate with the AAA rating threshold amid the still-challenging operating environment.
Ho Chian Leng
(603) 3385 2527
Wong Yin Ching, CFA
(603) 3385 2555
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Ratings on Credit Guarantee and Investment Facility