RAM Ratings assigns gA2(s) global rating to Cagamas’ proposed EMTN programme, reaffirms existing ratings

Published on 02 September 2014

RAM Ratings has assigned global rating of gA2(s)/Stable to Cagamas Global P.L.C.’s (Cagamas Global) proposed Multi-Currency MTN Programme of USD2.5 billion (the EMTN Programme). The enhanced rating reflects Cagamas Berhad’s (the Company) credit risk profile as the guarantor of the Notes issued under the EMTN Programme.

Cagamas Global – incorporated in Labuan – is a funding vehicle set up as a wholly owned subsidiary of Cagamas, to undertake the issuance of the Notes under the EMTN Programme. Cagamas’ gA2/Stable/gP1 ratings are underpinned by its robust asset quality, solid capitalisation and systemic position within the Malaysian capital markets in its role as a liquidity provider. The Company also carries AAA/Stable/P1 and seaAAA/Stable/seaP1 on RAM’s national and ASEAN scales, respectively. Given Cagamas’ systemic importance, RAM believes that support will be readily extended in the event of any financial distress. As such, its ratings are correlated with Malaysia’s sovereign ratings to some extent. Any movement in Malaysia’s sovereign ratings could lead to a change in the Company’s ratings and, consequently, that of the EMTN Programme.

As Malaysia’s national mortgage corporation, Cagamas supports the Government’s objective of widespread homeownership for the people and also promotes the long-term development of the domestic capital markets. Although Cagamas’ operations are locally based at present, the Company is also exploring opportunities to establish a regional footprint, building on its experience in developing secondary mortgage markets. The proposed EMTN Programme will place Cagamas in a good position to access the international markets to support its growth. This will also further diversify its investor base, which is currently skewed towards domestic financial and institutional investors.

Cagamas’ assets mainly comprise loans/financing 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 housing loans/financing last year. The repayments of these housing loans/financing are non-discretionary and directly deducted from the borrowers’ salaries. Given that non-discretionary salary deductions at source are a key feature of its PWOR portfolio, the significant increase will not affect the portfolio’s overall asset quality. Cagamas’ selective approach to expanding 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.

RAM has also reaffirmed Cagamas’ global-scale, ASEAN-scale and national-scale corporate credit ratings at gA2/Stable/gP1, seaAAA/Stable/seaP1 and AAA/Stable/P1, respectively. The national-scale ratings of its other rated instruments, i.e. RM40 billion Islamic and Conventional MTN Programmes (2007/2047) and RM5 billion Islamic CP/MTN Programme (2010/2040), have also been reaffirmed at a respective AAA/Stable/- and AAA/Stable/P1.

Media contact

Lee Sook Wei

(603) 7628 1017

sookwei@ram.com.my