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RAM Ratings affirms MDV’s AA3 ratings
Published on 12 Sep 2024.
RAM Ratings has affirmed 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 Lands Commissioner. Our recent meeting with Ministry of Finance officials affirms our view that MDV is highly likely to receive government support, if required.
MDV is deemed highly strategic to the government, given its importance to the nation’s agenda of nurturing firms in the technology sector. Established in 2002, its mandate is to address the funding needs of technology companies – particularly small and medium-sized enterprises – that are unserved or underserved by commercial banks. The Company’s strong relationship with the government has been evident since its inception, with support demonstrated through the partial conversion of MDV’s debt to equity, government guarantees and a sukuk funding cost subsidy.
The credit profile of MDV’s financing book further weakened in FY Dec 2023 after three sizeable accounts turned impaired. The Company’s gross impaired financing (GIF) ratio consequently rose to a high of 38.7% as at end-December 2023 (end-December 2022: 21.0%), reflecting its inherently riskier portfolio in view of its developmental mandate. The Company’s credit cost ratio climbed sharply to 10.1% in fiscal 2023 (fiscal 2022: 3.5%) while GIF coverage was a weaker 58.3% as at end-December 2023 (end-December 2022: 76.3%). Including guarantees from Credit Guarantee Corporation, however, the adjusted GIF coverage would be higher at around 83%, a manageable level.
Following heftier net impairment charges, the Company’s pre-tax loss widened to RM56.6 mil in fiscal 2023 (fiscal 2022: RM18.6 mil pre-tax loss). Gearing, while higher, stayed comfortable at 3.5 times (end-December 2022: 3.0 times). MDV’s capital remains sufficient to absorb potential credit losses should financing quality deteriorate further, especially if financing growth is moderate.
Analytical contacts
Sean Lim, CFA
(603) 3385 2550
sean@ram.com.my
Jeremy Noel Paul
(603) 3385 2556
jeremynp@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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
© Copyright 2024 by RAM Rating Services Berhad
