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Press Release
19 Jun | Thursday
RAM Ratings assigns P1 ratings to Cagamas’ proposed Islamic and Conventional CP programmes

RAM Ratings has assigned P1 ratings to Cagamas Berhad’s (the Company) proposed RM20 billion Islamic and Conventional CP Programmes. The ratings reflect Cagamas’ robust asset quality, solid capitalisation and systemic position within the domestic capital markets in its role as a liquidity provider.

As Malaysia’s national mortgage corporation, Cagamas (rated AAA/Stable/P1) supports the national objective of achieving widespread homeownership and promoting the long-term development of the domestic capital markets. Notably, Cagamas is one of the largest issuer of corporate debt instruments in Malaysia and its securities are widely held by financial institutions and pension funds. Given the Company’s strategic importance in the domestic market, RAM believes that support would be forthcoming in the event that it ever goes into financial distress.

Cagamas’ assets mainly comprise loans purchased on a “with recourse” (PWR) and “without recourse” (PWOR) basis. RAM highlights that some 92% of the Company’s PWR exposures constitutes counterparties with at least AA ratings. Meanwhile, its PWOR exposure jumped up to 61% of its total receivables as at end-December 2013 (end-December 2012: 46%), attributable to new purchases of non-discretionary salary deducted housing loans/financing last year. Given that non-discretionary salary deductions at source is a key feature of its PWOR portfolio, the significant increase will not affect the overall asset quality. Cagamas’ selective approach to growing its PWOR portfolio is also reflected in its low impaired-loan ratio of 0.6% as at the same date, against the Malaysian banking system’s 1.5% for residential mortgages. Furthermore, the Company’s overall risk-weighted capital-adequacy ratio of 24.3% is deemed superior as it is mainly underscored by high-quality capital such as common shares and retained earnings.

Although Cagamas’ operations are currently locally based, the Company is exploring opportunities to establish a regional footprint, building on its experience in developing secondary mortgage markets through its PWR and PWOR schemes. However, details remain scant at this point.

The proposed CP Programmes will be used to refinance Cagamas’ existing RM20 billion Islamic and Conventional CP Programmes (2007/2014), which currently carry P1 ratings and are due to expire on 25 June 2014. Cagamas’ other rated instruments, i.e. RM40 billion Islamic and Conventional MTN Programme (2007/2047) and RM5 billion Islamic CP/MTN Programme (2010/2040), currently carry respective AAA/Stable/- and AAA/Stable/P1 national-scale ratings from RAM. The Company’s respective global and ASEAN corporate credit ratings of gA2/Stable/gP1 and seaAAA/Stable/seaP1 are correlated with Malaysia’s sovereign ratings to some extent, given Cagamas’ systemic importance in the domestic financial system. In this regard, any movement in Malaysia’s sovereign ratings could lead to a change in the Company’s ratings.

Media contact:
Lee Sook Wei
(603) 7628 1017
sookwei@ram.com.my

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