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21 Dec | Thursday
RAM Ratings revises outlook on RCE-sponsored vehicle’s Tranche 3 RM45.0 million Class B Sukuk, from stable to positive

RAM Ratings has revised the outlook on the AA3 rating of Al-Dzahab Assets Berhad’s (the Issuer) RM45.0 million Tranche 3 Class B Sukuk, from stable to positive. The rating of Tranche 3 Class A Sukuk remains at AAA/Stable. The Tranche 3 Sukuk is the third issuance under Al Dzahab’s RM900.0 million Sukuk Murabahah Asset-Backed Securitisation Programme (the Programme); 4 issuances have been completed to date since June 2016, bringing the total rated amount to RM590.0 million.

Tranche 3 is collateralised by a portfolio of personal-financing (PF) facilities (extended to civil servants) originated by RCE Marketing Sdn Bhd (RCEM) through its business partners, repaid via non-discretionary salary deductions processed by the Accountant General's Department and Angkatan Koperasi Kebangsaan Malaysia Berhad. This repayment mechanism substantially insulates the transaction from the credit risks of the borrowers, as long as they remain in active service.

The revision of the rating outlook indicates our expectation that the collateral cover supporting the Class B Sukuk will improve to a level that corresponds to a higher rating, if the underlying portfolio is able to sustain its current performance. In the 6 months since the issuance date, the underlying pool has outperformed in terms of loss performance, resulting in a larger surviving pool than initially estimated. While the performance history is short, we note that the earlier issuances, i.e. Tranche 1 and Tranche 2, also demonstrate similar loss trends. Despite disrupted collections earlier this year that had deteriorated the ageing profile of the underlying portfolio, it has not shown any material credit impairment. To some extent, the portfolio’s richer asset yield compared to the earlier tranches has also contributed to the more rapid build-up of credit enhancement.

As at end-September 2017, the collateral’s cumulative net default rate stood at 0.63%, well below our base-case assumption of 1.38% (as a percentage of the principal balance on the purchase date). Its monthly prepayment rate averaged 0.18%, which is well within our respective low- and high-prepayment stress levels of 0.035% and 1.0%. We remain cautious that the debt-servicing ability of households could weaken following the introduction of more accessible financing avenues for affordable home schemes, such as the PPA1M homes that cater to civil servants.

That said, we expect RCEM to be able to manage the portfolio’s delinquencies and defaults given its experience and track record. Notably, the monthly collection rate for RCEM’s PF facilities has recovered to above 100% since June, underpinned by the servicer’s increased collection efforts following disrupted collections earlier this year. We also expect prepayments to be sustained around the current level, with more muted competition after the introduction of Bank Negara Malaysia’s responsible financing guidelines.

RAM’s cashflow assessment indicates that the underlying portfolio will be able to meet full and timely payment of the financial obligations on Tranche 3 under the respective “AAA” and “AA3” stress scenarios for the Class A and Class B Sukuk. The RM110.0 million Class A Sukuk and RM45.0 million Class B Sukuk are supported by receivables with an outstanding principal value of RM164.25 million and RM19.41 million of cash balances, translating into improved overcollateralisation ratios of 66.96% and 18.49%.

Al Dzahab is a special-purpose vehicle incorporated to undertake the securitisation of receivables originated through the business partners of RCEM. Under the Programme, the Issuer will, from time to time, issue sukuk to fund its acquisition of PF portfolios. Stop-issuance trigger events prohibit further issuance under the Programme should the Servicer’s ability to perform its obligations – including servicing the PF facilities – become impaired.

Analytical contact
Tan Han Nee
(603) 7628 1023
hannee@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

Date of release: 20 December 2017

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 2017 by RAM Rating Services Berhad’s

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