Published on 29 Sep 2017.
RAM Ratings has placed the AA1 rating of Cendana Sejati Sdn Bhd’s (the Issuer) RM360 million Senior Sukuk Murabahah MTN Programme (2015/2025) on Rating Watch, with a negative outlook. The negative Rating Watch has been triggered by material developments relating to the RM68 million pool (by outstanding principal) of payroll-deducted consumer financing (as at end-June 2017) extended to civil servants. This has been pledged as collateral for the Senior Sukuk, of which RM70 million is outstanding. There is also RM9 million of Junior Sukuk currently issued under the Issuer’s Junior Sukuk Murabahah MTN Programme (the Junior Sukuk Programme).
The transaction had been structured with minimum overcollateralisation cover prior to each drawdown, and is supported by a liquidity reserve build-up for principal and profit payments. It also requires the Issuer to meet minimum distribution covenants before repayments can be made on the Junior Sukuk. These collectively provide buffers against cashflow losses arising from defaults and dilution as well as liquidity risk. We believe that such buffers have now been severely eroded following the restructuring of more than 90% of these receivables, which have resulted in significantly reduced monthly instalments and substantially extended tenures for the portfolio.
The Senior Sukuk had been issued together with the Junior Sukuk to fund the purchase of consumer-financing receivables originated by its parent company, Masraf Al Barakah Sdn Bhd. These receivables are generated by credit sales to civil servants for the purchase of certain products. The Senior Sukuk is repaid via collections made by Coshare Holdings Berhad - a related company of Cendana Sejati - through its automatic salary-deduction mechanism.
The resolution of the Rating Watch will result in a corresponding rating action on Cendana Sejati’s rated sukuk. We expect to announce this upon the completion of our annual review, which is currently ongoing.
RAM’s Rating Watch highlights a possible change in an issue's debt rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated debt under special surveillance by RAM. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and interest.
Issues will appear on RAM’s Rating Watch when some of the above events are expected to or have occurred. Appearance on RAM’s Rating Watch, however, does not inevitably mean that the rating will be changed. It only means that a rating is under evaluation by RAM and a final affirmation is expected to be announced. A "positive" outlook indicates that a rating may be raised while a "negative" outlook indicates that a rating may be lowered. A “developing” outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.
Analytical contact
Chin Jin Han
(603) 7628 1168
jinhan@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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