RAM Ratings reaffirms ratings of Diners Club’s card-receivables-backed notes

Published on 10 May 2012

RAM Ratings has reaffirmed the respective A2, A3 and BBB2 ratings of Domayne Asset 2 Corporation Berhad’s (DACB 2) RM110.0 million Class A Notes, RM2.5 million Class B Notes and RM3.5 million Class C Notes (collectively known as “the Senior Notes”), under a 7.25-year RM150 million Medium-Term Notes (MTN) Programme; all the long-term ratings have a stable outlook.



DACB 2 is a special-purpose vehicle incorporated to undertake the issuance of the Senior Notes; the issuance proceeds have been used to partially fund the purchase of eligible receivables from Diners Club (Malaysia) Sdn Bhd (Diners Malaysia). The difference between the purchase price and the cash consideration is funded by the Junior Notes, which are subordinated to the Senior Notes at all times. As at end-January 2012, DACB 2 had drawn down RM33.5 million of the Class A Notes, which are backed by RM45.6 million of card receivables (the Collateral). The Collateral primarily constitutes credit-card receivables (65.1%) and charge-card receivables (33.0%).

The reaffirmation of the ratings is premised on the satisfactory performance of the Collateral and the available credit support from the Junior Notes, which continue to provide sufficient protection against the expected losses under the respective A2, A3 and BBB2 stressed rating scenarios for the Class A, Class B and Class C Notes. As at end-January 2012, the overcollateralisation ratio of the Class A Notes stood at 37.1%, including the credit support from RM12.5 million of Junior Notes.

As at end-January 2012, Diners Malaysia’s number of cards in force had shrunk another 12.9% to 62,381 cards, thus reducing its market share to 0.75%. The decline had been mainly due to Bank Negara Malaysia’s tighter regulatory measures on the credit-card industry, in addition to Diners Malaysia’s focus on card activation rather than expansion. We also note that about half of the cancelled cards had been either inactive or showed minimal spending. Moving forward, Diners Malaysia will be expanding its credit-card business more aggressively via strategies to initiate upfront card utilisation, besides working closely with its existing merchants and co-brand partners to develop new bundled packages. While RAM Ratings notes that delinquency rates may climb up, we also expect approval to be selective amid tighter monitoring by Diners Malaysia to help manage delinquency levels.

The transaction’s risks include Diners Malaysia’s untested servicing ability in handling a much larger receivables base and the possible compromising of its credit standards due to competitive pressures in trying to achieve its target of doubling its receivables base over the next 3 years. Nonetheless, we note that the Servicer’s enhanced operational and monitoring system has not encountered any major interruptions in facilitating its credit-card business, although its portfolio remains small at present.

Media contact
Lim Chern Yit
(603) 7628 1035
chernyit@ram.com.my