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RAM Ratings assigns preliminary AAA rating to Malaysia’s first pawn loan securitisation by TY Consolidated Capital
Published on 20 May 2025.
RAM Ratings has assigned a preliminary rating of AAA/Stable to the RM200 mil First Tranche Senior Medium-Term Notes (MTN) to be issued under TY Consolidated Capital Berhad’s (the Issuer) RM500 mil MTN Programme. This MTN will be Malaysia’s first pawn loan securitisation transaction.
The Issuer is a trust-owned special-purpose vehicle incorporated to facilitate the securitisation of pawn loans originated by the subsidiaries of Ta Yoong Sdn Bhd (Ta Yoong or the Group, the Sponsor and Servicer for the transaction).
Founded in 1947, Ta Yoong is a second-generation family business with over 70 years of experience in the pawnbroking industry. The Group is in the process of institutionalising its business with professionals for long term continuity. Currently owning and operating 15 pawnshops in Klang Valley, it has consistently demonstrated healthy disbursements and earnings despite intense competition from both conventional and Ar-Rahnu pawnbroking operators. In FY Dec 2024, the Group disbursed about 410,000 pawn loans amounting to RM854 mil.
The First Tranche MTN will consist of RM200 mil of Senior MTN and RM31 mil of Junior MTN (subscribed by the Group), the proceeds of which will be used to fund the purchase of RM231 mil of eligible receivables (the Portfolio) at closing, prefund liquidity reserves and defray issuance expenses. While Ta Yoong accepts various valuables as collateral, this transaction involves only pawn loans backed by gold originated from nine out of its 15 pawnshops (collectively, the Originators).
The rating of the MTN is supported by an overcollateralisation (OC) ratio of 15.50%, providing adequate credit support commensurate with the AAA-stressed rating scenario. Our cashflow analysis factors in a 5% base case default rate with a 4.50 times stress multiple, loan-to-value ratio of 90% for the pawn loans, as well as a 40% stress decline in gold price, among other considerations. Our assumptions are primarily based on the Group’s historical data on delinquency, early settlement and recovery involving 104 static pools originated between January 2016 and August 2024.
The quality of pawn loans originated is highly dependent on the competency of the collateral assessors, which we believe Ta Yoong has. Recovery from pawned items, however, is subject to the volatility of gold prices, which are influenced by myriad exogenous factors. Hence, we will monitor and review our stress assumptions, particularly at times of potential sustained volatility or a sharp drop in gold prices. Regulatory changes will also be reviewed against any potential negative impact on the portfolio.
Given the short-tail of pawn loans, which have maximum regulated tenures of six months, the transaction structure includes a revolving feature that allows the Issuer to use net monthly collections to buy additional receivables from the Originators, provided that eligible criteria and conditions are met. The revolving period (RP) will run for 48 months from the issue date before entering a controlled amortisation period of 12 months where the Issuer will cease further purchases and cash collections will be used to meet ongoing obligations and redeem outstanding MTN on the maturity date. The Issuer must maintain a minimum OC level of 15.50% throughout the RP and if any Junior MTN coupons are paid.
To pre-empt portfolio performance deterioration, the transaction will enter a Rapid Amortisation Period (RAP) upon the occurrence of certain events such as a three-month moving average (MA) default rate of above 3% or a two-month MA collection rate of below 90%. During the RAP, the Issuer will cease further purchases and excess collections (after meeting ongoing obligations) will be used to amortise outstanding Senior MTN on a monthly basis. The transaction structure will also enter a RAP if OC (without cash balances) falls below 10% for two consecutive months.
As the rating is preliminary, any material changes in the underlying assumptions may result in a change in the rating. A final rating will be assigned after RAM’s satisfactory review of the final transaction documents and relevant legal and tax opinions.
For more details on RAM’s rating approach, please refer to our publication “Transforming Traditional Finance: Securitising Pawnbroking Receivables” here.
Analytical contacts
Liew Kar Ling
(603) 2708 8216
karling@ram.com.my
Lim Chern Yit
(603) 2708 8302
chernyit@ram.com.my
Media contact
Sakinah Arifin
(603) 2708 8212
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.
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Published by RAM Rating Services Berhad
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