RAM Ratings reaffirms Cagamas' ratings

Published on 03 September 2015

RAM Ratings has reaffirmed Cagamas Berhad’s (the Company) global-, ASEAN- and national-scale corporate credit ratings, at a respective gA2/Stable/gP1, seaAAA/Stable/seaP1 and AAA/Stable/P1. The ratings reflect Cagamas’ robust asset quality, sturdy capitalisation and strategic importance to the domestic capital markets. Concurrently, we have also reaffirmed the Company’s various issue ratings, as tabulated below.

	Rating Action	Rating(s)
Cagamas Berhad
Corporate Credit Ratings	Reaffirmed	gA2/Stable/gP1 seaAAA/Stable/seaP1 AAA/Stable/P1
RM40 billion Islamic and Conventional MTN Programme  (2007/2047)	Reaffirmed	AAA/Stable/-
RM5 billion Islamic CP/MTN Programme (2010/2040)	Reaffirmed	AAA/Stable/P1
RM20 billion Islamic and Conventional CP Programme  (2015/2022)	Reaffirmed	-/-/P1
Cagamas Global PLC
USD2.5 billion Multi-Currency MTN Programme	Reaffirmed	gA2(s)/Stable/-
Cagamas Global Sukuk Bhd
USD2.5 billion Multi-Currency Sukuk Programme	Reaffirmed	gA2(s)/Stable/-

As Malaysia’s national mortgage corporation, Cagamas supports the Government’s objective of achieving widespread homeownership and promoting the long-term development of the domestic capital markets. Notably, Cagamas is one of the largest issuers of private debt securities in Malaysia; its securities are widely held by financial institutions. Given the Company’s strategic importance, we believe that government support will be readily extended in the event of any financial distress.
Cagamas’ ratings are also underpinned by its continued ability to deliver solid financial metrics in line with our expectations. RAM highlights that some 90% of the Company’s purchase–with-recourse (PWR) exposure is related to counterparties that carry at least AA ratings, thus supporting Cagamas’ robust asset quality. Meanwhile, its purchase-without-recourse (PWOR) portfolio continues to exhibit a healthy performance, with a gross impaired-loan (GIL) ratio of 0.84% as at end-December 2014 - reflecting the Company’s selective approach to portfolio expansion. We note, however, that this GIL ratio is slightly higher than the 0.62% as at end-December 2013, mainly due to administrative delays in updating payment records following a system migration exercise by the Government’s Housing Loan Division. The GIL ratio is expected to normalise once these figures are reconciled. The Company’s overall risk-weighted capital-adequacy ratio of 24.3% as at the same date is deemed superior, mainly underscored by high-quality capital that includes common shares and retained earnings.
On the other hand, the positives above are somewhat moderated by domestic business challenges. Malaysia’s financial sector still enjoys ample liquidity and good access to the capital markets. As such, Cagamas’ initial business model of providing liquidity to the mortgage sector remains challenged. The possibility of further consolidation within the banking industry will also reduce Cagamas’ pool of local clients. To address these challenges, the Company has set its sights on cross-border opportunities and plans to engage with a broader segment of the financial sector while expanding its product range to include new asset classes.
To date, Cagamas has issued securities in 4 foreign currencies, including offshore-traded renminbi (CNH), USD, HKD and SGD through its USD2.5 billion Multi-Currency MTN Programme set up last year; the proceeds have been mainly used to fund domestic asset purchases. While we note that Cagamas’ long-term plan to explore regional opportunities and the purchase of new asset classes may affect its risk profile, these efforts have yet to gain much traction. Such new ventures, if successful, may also contribute positively to the Company’s future growth and profitability.

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