RAM Ratings assigns AA1/Stable/P1 ratings to Sabah Credit Corporation’s proposed RM1.5 billion sukuk

Published on 07 April 2014

RAM Ratings has assigned AA1/Stable/P1 ratings to Sabah Credit Corporation’s (SCC or the Corporation) Proposed Islamic CP (ICP) Programme of up to RM750 million and Proposed Islamic MTN (IMTN) Programme of up to RM1.5 billion, subject to a joint limit of RM1.5 billion in nominal value. Concurrently, we have also reaffirmed the ratings of SCC’s existing debt instruments (refer to the table below).

Instrument	Rating action	Ratings
ICP (2013/2020)/IMTN (2011/2031) Programme of up to RM1 billion*	Reaffirmed	AA1/Stable/P1
RM500 million CP/MTN Programme (2007/2014)	Reaffirmed	AA1/Stable/P1

* subject to a joint limit of RM1 billion

Wholly owned by the State Government of Sabah (whose debt facility is rated AAA/Stable/P1 by RAM) and operating under the purview of the Sabah State Ministry of Finance, SCC focuses on the provision of personal-financing facilities (93% of its overall financing portfolio) to civil servants in that state. Repayment is effected through direct salary deductions.

The ratings reflect our expectation of continued support for SCC from the State Government. This has been demonstrated through the subordination of the Corporation’s State Government loans to its debt securities and the conversion of some of these loans into share capital, as well as the reinvestment of dividends as SCC’s capital and the extension of letters of support for its debt securities. Notably, the State Government has expressed its intention of maintaining its 100%-ownership of SCC throughout the tenures of these securities.

As at end-December 2013, SCC’s gross impaired-financing (GIF) ratio had declined to 4% on the back of an enlarged loan base, following a 36% surge in personal financing as well as recoveries and write-offs. We note that SCC’s credit-cost ratio had increased to 1.0% in FY Dec 2013, mainly due to additional provisions relating to write-offs made during the year. Looking ahead, SCC’s GIF ratio will likely edge up given that a large proportion of SCC’s personal-financing portfolio is unseasoned owing to its rapid growth in recent years. The Corporation’s tier-1 and total capital ratios are estimated to stand at a healthy 18% and 20%, respectively, as at end-December 2013.

In FY Dec 2013, SCC’s pre-tax profit strengthened 22% y-o-y to RM68.8 million, supported by the more robust growth of the lucrative personal-financing segment and lower funding costs. Its return on assets and net financing margin improved to a respective 3.6% and 5.4% (FY Dec 2012: 3.4% and 5.2%). Meanwhile, SCC remains heavily reliant on wholesale funding as it has no deposit-taking capabilities. While this exposes the Corporation to liquidity and roll-over risks, we believe that support from the State Government will be readily extended if needed.

Media contact
Poh Wen Jun
(603) 7628 1038
wenjun@ram.com.my