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Press Release
09 Mar | Friday
RAM Ratings assigns final AAA/Stable and AA3/Stable ratings to RCE-sponsored Tranche 5 sukuk

RAM Ratings has assigned final AAA/Stable and AA3/Stable ratings to Al Dzahab Assets Berhad’s (the Issuer) RM135.0 million Class A Sukuk and RM45.0 million Class B Sukuk, respectively. These represent the fifth issuance under Al Dzahab’s RM900.0 million Sukuk Murabahah Asset-Backed Securitisation Programme (the Programme). Four issuances have been completed to date since June 2016, with a total rated amount of RM590 million. As with previous tranches, this issuance will be collateralised by personal-financing (PF) facilities (extended to civil servants) originated by RCE Marketing Sdn Bhd (RCEM) through its business partners. These facilities will be repaid via non-discretionary salary deductions processed by the Accountant General’s Department and Angkatan Koperasi Kebangsaan Malaysia Berhad, thereby substantially insulating the transaction from the credit risks of the borrowers as long as they remain in active service.

RAM’s cashflow assessment indicates that the underlying portfolio will be able to meet full and timely payment of financial obligations relating to Tranche 5 under respective AAA and AA3 stress scenarios for the Class A and Class B Sukuk. This is consistent with what had been applied to Tranches 1 to 4, i.e. multiples of 4.00 and 2.75 times of the assumed steady state default scenario, respectively. The RM135.0 million Class A Sukuk and RM45.0 million Class B Sukuk will be backed by receivables with outstanding principal values of RM201.1 million and RM4.7 million of required cash reserves, translating into respective overcollateralisation (OC) ratios of 52.45% and 14.34%. Tranche 5’s higher required OC ratios relative to earlier issuances, particularly Tranches 3 and 4, reflect its lower portfolio yield, although somewhat moderated by its more seasoned age profile.

Up to December 2017, the respective underlying portfolios of Tranches 1 to 4 had shown a better performance than RAM’s loss expectations. RAM will request and reassess more updated historical data from time to time, and make necessary adjustments if and when necessary. Over the same period, RCEM’s receivables ageing profile was largely stable while average monthly collections for RCEM’s PF facilities were kept above 110%, subsequent to a temporary 2-month disruption. RCEM’s intensified recovery efforts had also led to an improvement in the securitised pool aging profile since June 2017. Although it has yet to fully revert to levels seen prior to the disruption, receivables above 2 months past due accounted to less than 2% of the respective securitised pools as at end-December 2017. Going forward, we are mindful of the fact that the debt-servicing ability of households, particularly lower-income earners, could weaken following the introduction of more accessible financing avenues for affordable home schemes. Furthermore, Lembaga Pembiayaan Perumahan Sector Awam – the public-sector mortgage financier – ranks above co-operatives and foundations in terms of priority in salary deductions. This could increase the risk of shortfalls in deductions if the prescribed deduction limit is not strictly adhered to, although this only applies to PF facilities originated from July 2017 onwards, which are not part of the securitised pools. Nevertheless, we note stricter monitoring since the middle of last year to ensure payroll deductions are kept within the threshold. We further believe RCEM has sufficient experience and capabilities to keep delinquencies and defaults of its receivables manageable.

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 issuances 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: 9 March 2018

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 2018 by RAM Rating Services Berhad’s

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