RAM Ratings has reaffirmed the AA1 rating of Malaysia Building Society Berhad’s (MBSB or the Issuer) RM900.0 million

Published on 18 August 2016

RAM Ratings has reaffirmed the AA1 rating of Malaysia Building Society Berhad’s (MBSB or the Issuer) RM900.0 million Tranche 3 Structured Covered Sukuk (Tranche 3 Sukuk), with a stable outlook. The issue rating reflects MBSB’s long-term financial institution rating (FIR), the transaction’s interruption risk (I-Risk), and the sufficiency of the available collateral cover of 145.77%, which supports a 4-notch rating uplift from the Issuer’s long-term FIR.

While we opine that the Tranche 3 Cover Assets will continue providing sufficient collateral cover for the transaction under an “AA1 stress” scenario, any negative change in the Issuer’s FIR or the transaction’s I-risk may lead to a change in the rating of the Tranche 3 Sukuk. In this respect, RAM has reaffirmed MBSB’s A2/Stable long-term FIR (please refer to this link for more information).

The Tranche 3 Cover Assets consist of a portfolio of personal-financing facilities for civil servants, originated by MBSB. As at end-May 2016, the transaction’s 45.77% overcollateralisation (OC) level reflected an outstanding principal balance of RM1,133.70 million and RM127.22 million of cash and permitted investments, backing RM865.0 million of outstanding Tranche 3 Sukuk. As the same time, the underlying portfolio’s Asset Coverage Ratio (ACR) stood at 144.50%, i.e. above the transaction requirement of 137.00%. We note that the Issuer currently does not intend to utilise excess cash balances to purchase additional receivables. Moving forward, we expect the transaction’s OC ratio and ACR to continue improving, especially after the transaction deleverages, in line with the next scheduled principal redemption of RM100.0 million in May 2017.

The Tranche 3 Cover Assets exhibited positive credit quality during the reviewed period. The cumulative net default rate of the assets stood at 0.89% of the initial outstanding principal balance, i.e. below our base-case cumulative net default rate of 1.32%. Since issuance, the average monthly prepayment rate of 0.16% of the initial outstanding principal balance matches our expectation of 0.16% under a high-prepayment scenario. With 15.70% of the portfolio (by outstanding principal) comprising receivables with remaining tenures of less than 120 months, we may observe a pick-up in the average prepayment rate. Nonetheless, the effects of negative carry resulting from prepayments may be offset by the Issuer’s option to purchase additional eligible receivables, and are mitigated by the serial redemption of the Tranche 3 Sukuk. Moreover, as a significant portion of the Tranche 3 Cover Assets’ cashflow falls beyond the last maturity date of the Tranche 3 Sukuk, any incidence of prepayment will be credit positive. We will continue monitoring the transaction’s prepayment trends and periodically reassess our assumptions, if required.

All figures were restated based on the latest information available. Please refer to this link for further information.

Media contact
Daniel Wong
(603) 7628 1172
danielwong@ram.com.my