RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Berhad’s RM2.11 billion Sukuk Musyarakah Islamic residential mortgage-backed securities (2007/2027) (CMBS 2007-1-i).

Published on 23 May 2016

RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Berhad’s RM2.11 billion Sukuk Musyarakah Islamic residential mortgage-backed securities (2007/2027) (CMBS 2007-1-i). Cagamas MBS is a limited-purpose entity incorporated for the purpose of securitising government staff housing loans and government staff Islamic home-financing facilities (GSIHFs).

The reaffirmation of the rating is based on CMBS 2007-1-i’s available credit support in the form of a 43.91% overcollateralisation (OC) ratio as at 31 July 2015. The higher OC ratio is primarily attributable to the transaction’s stable cashflow. As at the same date, the OC ratio was backed by RM286.70 million of cash and permitted investments and RM1.52 billion of outstanding home-financing receivables. This provides more than sufficient protection against the risks of prepayment and default on the underlying portfolio of GSIHFs under an AAA stressed scenario, as well as negative variance on investment returns.

During the reviewed period, the transaction performed within our expectations; the securitised portfolio’s cumulative net default rate stood at 0.52% as at 31 July 2015, against our base-case assumption of 4.87%. We note that the better-than-assumed default performance had amply eased the potential liquidity pressure arising from the underlying GSIHFs’ lower-than-assumed cumulative prepayment rate of 8.65%. Moving forward, we do not expect significant changes in the prepayment levels of CMBS 2007-1-i given the below-market interest rates of the GSIHFs. Default risk is further moderated by the GSIHFs’ non-discretionary repayment structure. As at 31 July 2015, the portfolio of GSIHFs comprised 22,483 accounts, with an average outstanding balance of RM67,581. The weighted-average term to maturity of the CMBS 2007-1-i pool stood at 13.10 years as at the same date.

Following the passing of the Public Sector Home Financing Board Act 2015 on 1 July 2015, the assets and liabilities of Bahagian Pinjaman Perumahan (BPP) (a division formally within the Ministry of Finance (MoF) and the primary unit servicing this transaction) were formally vested to Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) on 1 January 2016. Accordingly, the primary servicing functions for the securitised assets have also been novated to LPPSA. Operationally, LPPSA will continue using Sistem Pinjaman Perumahan Bersepadu’s module to manage the home-financing collections. It plans to implement a financial management system and human resources system to introduce an accrual accounting system to its existing infrastructure and to manage staff payroll as well as other employee functions. We do not foresee major changes in the transaction’s servicing quality in the immediate term, although we do not discount the possibility of some operational hiccups during this transition. Nevertheless, RAM will continue monitoring the developments on this front and the potential impact, if any, on the transaction.

Media contact
Irene Wong
03-7628 1176
irene@ram.com.my