FW: RAM Ratings reaffirms Cagamas' ratings

 

Published on 19 Oct 2017.

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. We have also reaffirmed the Company’s various issue ratings, as tabulated below. Concurrently, RAM has withdrawn the P1 rating on the Company’s RM5 billion Islamic CP Programme following its maturity on 19 August 2017. The ratings reflect Cagamas’ solid credit metrics, which are expected to remain robust despite its long-term plans to diversify into new areas and products. Given the Company’s strategic position in the domestic capital markets, as a liquidity provider to the financial system and also as one of the largest issuers of corporate bonds and sukuk, we believe that government support will be readily extended in the event of any financial distress. 

 

	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 MTN Programme (2010/2040)	Reaffirmed	AAA/Stable/-
RM20 billion Islamic and Conventional CP   Programme (2015/2022)	Reaffirmed	-/-/P1
Cagamas Global P.L.C.
USD2.5 billion Multicurrency MTN Programme	Reaffirmed	gA2(s)/Stable/-
Cagamas Global Sukuk Bhd
USD2.5 billion Multicurrency Sukuk Programme	Reaffirmed	gA2(s)/Stable/-

 

As a liquidity provider to the mortgage sector, Cagamas purchases loan/financing assets from financial institutions (FIs), the Government of Malaysia and selected corporations on a purchase-with-recourse (PWR) or purchase-without-recourse (PWOR) basis. During the reviewed period, the Company’s overall asset quality remained robust as 87% of its PWR exposure was to highly rated counterparties rated AA and above. Its PWOR portfolio continued to exhibit a healthy performance, with a gross impaired-loan (GIL) ratio of 0.84% as at end-December 2016, below the Malaysian banking system’s 1.14% for residential property mortgages. The healthy showing is partly attributable to the non-discretionary direct salary deductions for the repayment of these mortgage assets. RAM notes that the diversification of Cagamas’ PWR portfolio into other sectors such as infrastructure and SME is still in the cards, but will likely take some time to materialise. 

Going forward, Cagamas’ business prospects are expected to remain challenging given the matured operating environment, with most FIs highly rated, not to mention the available liquidity in the domestic financial markets. The Company’s recent purchases have been driven by its PWR scheme as the financial industry gears up towards full compliance with the prescribed liquidity ratios. In the absence of any significant purchases of higher-yielding PWOR assets, Cagamas’ margins are expected to remain under pressure. In FY Dec 2016, the Company’s net interest margin eased to 1.2% (FY Dec 2015: 1.4%).  

RAM highlights that Cagamas enjoys ready access to the capital markets given its quasi-government status; it is solely reliant on the wholesale market for funding. Nonetheless, the Company is exposed to minimal liquidity and refinancing risks given its strict asset-liability management. To ensure more competitive pricing of its products, Cagamas ensures that its trade instruments remain liquid and has been increasing the tradability of its debt issues by reopening outstanding ones and including its debt securities in global indices. This has to date enabled Cagamas to improve its time to market, with more attractive pricing of its issuances. 

Meanwhile, the Company’s overall risk-weighted capital adequacy ratio of 24.1% as at end-December 2016 is deemed superior, mainly underscored by high-quality capital that includes common shares and retained earnings. As at the same date, Cagamas’ common-equity tier-1 capital ratio stood at 22.3%. RAM notes that Cagamas’ long-term plans to explore regional opportunities and purchase new asset classes have yet to materialise, and are not expected to materially affect its capitalisation given the Company’s prudent and conservative management practices.

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

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my