From: Gan Yeow Hock
Sent: Friday, August 10, 2018 4:12 PM
To: Pricing <pricing@bpam.com.my>
Cc: DCM <dcm@bpam.com.my>
Subject: RAM Ratings reaffirms Cagamas' corporate credit and debt ratings
Published on 10 Aug 2018.
RAM Ratings has reaffirmed Cagamas Berhad's (the Company) global, ASEAN and national-scale corporate credit ratings at gA2/Stable/gP1, seaAAA/Stable/seaP1 and AAA/Stable/P1, respectively. We have also reaffirmed the Company's various issue ratings, as tabulated below. The ratings reflect our expectation that Cagamas' credit metrics will remain robust, anchored by its solid balance sheet and easy access to both local and global financial markets. Given that it is a liquidity provider to the financial system and one of the largest issuers of corporate bonds and sukuk domestically, we believe government support will be readily extended in the event of 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 |
| 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 Issuance 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. The Company's total purchases in fiscal 2017 were the highest in its history at RM14.1 billion, supported by RM15.3 billion of debt issuances in various currencies. Purchases were mainly attributable to its PWR scheme as FIs geared up to comply with the full implementation of the net stable funding ratio under Basel III in January 2018. For FY Dec 2018, Cagamas expects to achieve RM13 billion of purchases.
Overall, the Company's asset quality stayed robust in view of its exposure to highly rated counterparties in its PWR portfolio and the healthy gross impaired loan (GIL) ratio of its PWOR portfolio. As at end-December 2017, 85% of Cagamas' PWR exposure constituted counterparties rated at least AA. Its PWOR portfolio, meanwhile, recorded an improved GIL ratio of 0.72% as at the same date (end-December 2016: 0.84%), in comparison to the Malaysian banking system's 1.05% for residential property mortgages. RAM notes that the diversification of Cagamas' PWR portfolio into other sectors such as infrastructure and SME has yet to gain much traction and is likely to take some time to yield results.
Cagamas enjoys ready access to the capital markets owing to 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 due to strict asset-liability management. Cagamas' ability to maintain the strong level of purchases in 2017 will essentially depend on whether it can price its products more competitively relative to highly rated FIs that are able to raise funding directly from the capital market. Product pricing will, in turn, depend on the pricing of its debt securities which are highly sensitive to various exogenous factors such as Malaysia's sovereign rating (rated gA2/Stable/gP1 by RAM) and foreign investors' views on the prospects of the domestic economy and currency. In the absence of significant purchases of higher-yielding PWOR assets, Cagamas' margins are expected to remain under pressure. In FY Dec 2017, the Company's net interest margin eased to 1.1% (FY Dec 2016: 1.2%).
As at end-December 2017, the Company's overall risk-weighted capital adequacy ratio (RWCAR) had moderated slightly to 22.3% due to substantial purchases during the year. Nevertheless, its capital base is still deemed superior given the large composition of common shares and retained earnings, relative to the Company's exposure to highly rated counterparties and minimal impairment losses. Cagamas' common-equity tier-1 capital ratio stood at 20.8% as at the same date. Elsewhere, Cagamas' adoption of the local risk rating scale to arrive at its risk-weighted assets value will result in an improved RWCAR, which will comfortably support the Company's growing PWR purchases and varied business plans.
Analytical contact
Lim Chern Yit
(603) 7628 1035
chernyit@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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