MARC AFFIRMS ITS AAAIS RATING ON CAGAMAS MBS BERHAD’S RM2,110 MILLION ASSET-BACKED SUKUK MUSYARAKAH ISSUANCE (CMBS 2007-1-i)

MARC has affirmed its rating of AAA_IS on Cagamas MBS Berhad’s (Cagamas MBS) RM2,110.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2007-1-i) with a stable outlook. The rating action affects the outstanding sukuk of RM1,255.0 million. The affirmed rating reflects CMBS 2007-1-i’s robust credit enhancement level of 142.3% based on an outstanding principal of non-defaulted mortgages of RM1,601.4 million and collection account balance of RM184.6 million. CMBS 2007-1-i is backed by a pool of government staff Islamic home financings, namely Portfolio 2007-1-i, whose strong performance is evident in its low default rates.  

Cagamas MBS is a wholly-owned subsidiary of Cagamas Holdings Berhad and a special purpose vehicle company that was set up to acquire government staff home financings under conventional and Islamic principles from the Government of Malaysia (GOM) by issuing asset-backed securities. Cagamas MBS funded the acquisition of Portfolio 2007-1-i through proceeds from the issuance of CMBS 2007-1-i in May 2007. The profit payment and principal redemption of CMBS 2007-1-i are being met by monthly instalments of Portfolio 2007-1-i through direct salary or pension deductions. MARC views the direct deduction mitigates non-timely payment risks. The GOM’s Housing Loans Division, or Bahagian Pinjaman Perumahan (BPP), is the servicer of Portfolio 2007-1-i.

Portfolio 2007-1-i comprises 22,970 accounts with a total outstanding principal of RM1,613.3 million and has continued to exhibit a low cumulative default rate (CDR) of 0.47% against MARC’s assumed CDR and stressed CDR of 3.09% and 9.26% respectively. Defined as accounts in arrears exceeding nine months, the defaults were largely due to administrative and technical delays arising from pending claims on mortgage reducing term assurance and confirmation of borrowers’ status after cessation of home financing instalments. Since the last review, the delinquency rate of the collateral pool as at October 31, 2014 increased to 5.08% from 1.85%. This was attributed to data reconciliation lag as a result of migration to BPP’s new mortgage payment and recording system (Sistem Pinjaman Perumahan Bersepadu) during the period between June 2014 and March 2015. The rating agency expects Portfolio 2007-1-i to experience high delinquency rates in the next two to three quarters before the rates recover to normalised levels.

For the period under review (November 1, 2013 – October 31, 2014), Portfolio 2007-1-i registered quarterly prepayment rates of between 0.33% and 0.58%, leading to an increase in cumulative prepayment to RM207.9 million (last review: RM176.6 million). Despite having seasoned home financings in the collateral pool, the growth of cumulative prepayments may be slower in the near term in light of growing inflationary pressure from the introduction of the Goods and Services Tax. While low prepayments potentially expose Cagamas MBS to liquidity risk, the current cash balance of RM184.6 million and overcollateralisation level of 127.60% on CMBS 2007-1-i are mitigating factors. The risk of higher-than-expected prepayments is addressed by the conditional pass-through provision that allows Cagamas MBS to early redeem the sukuk in reverse order with the last tranche being paid first subject to the availability of at least RM90 million in the collection account post-redemption.

The stable outlook reflects MARC’s expectations of continued stable collateral performance supported by at-source salary/pension deductions and a sustained high credit enhancement level that remains supportive of the rating.

  

Contacts: Ng Chun Kean, +603-2082 2230/ chunkean@marc.com.my; David Lee, +603-2082 2255/ david@marc.com.my.

21 May 2015