Published on 06 Aug 2018.
RAM Ratings has reaffirmed Danajamin Nasional Berhad's (Danajamin or the Company) insurer financial strength (IFS) ratings at AAA/Stable/P1. At the same time, the respective AAA/Stable and AA1/Stable ratings of the Senior and Subordinated Sukuk under the Company's Sukuk Murabahah Programme of up to RM2.0 billion have been reaffirmed. The rating of the Subordinated Sukuk is one notch below Danajamin's long-term IFS rating to reflect its subordination to the Company's senior obligations.
The ratings reflect our view that Danajamin will continue to benefit from extraordinary support from the Government of Malaysia (GoM), given its confidence-sensitive role as the national financial guarantee insurer. Jointly owned by the Minister of Finance Incorporated and Bank Negara Malaysia via Credit Guarantee Corporation Malaysia Berhad, Danajamin is mandated to stimulate and deepen the domestic bond and sukuk market. Reflective of the GoM's commitment, the Company has access to RM1 billion of capital on call, in addition to RM1 billion in paid-up capital.
The ratings also reflect Danajamin's robust capitalisation, strong liquidity, and leverage which has remained comfortably within RAM's limit for its ratings. As at end-March 2018, the Company's leverage ratio stood at 3.0 times. Supported by the issuance of Subordinated Sukuk, Danajamin's capital adequacy ratio exceeded 400% as at the same date, well above the regulatory requirement of 130%. The Company's liquid assets stood at RM1.8 billion or 4.2 times its net insurance contract liabilities as at end-March 2018, providing adequate buffer to meet any liquidity needs from potential claims.
Danajamin's relatively small portfolio results in obligor and sector concentration. Its mandate also naturally entails higher credit risks. As there have been no claims since its set-up, future claims cannot be ruled out, considering the challenging environment for some sectors. An obligor in the oil & gas sector has recently been admitted to the Corporate Debt Restructuring Committee (CDRC) in July 2018. We do not expect this to adversely impact Danajamin's credit worthiness given the exposure size.
With three new issuances in fiscal 2017, Danajamin's guarantee portfolio grew to RM6.1 billion as at end-December 2017 (end-December 2016: RM5.7 billion). Notwithstanding higher gross written premiums and investment income, its pre-tax profit was a lower RM114.2 million (fiscal 2016: RM125.5 million), due mainly to timing adjustments of premium recognition and financing cost. Large scheduled redemptions and the smaller size of recent deals may limit significant portfolio growth going forward.
Negative rating triggers include a reduced likelihood of extraordinary support from the GoM, adverse claims and significant deterioration in leverage and regulatory capital. Danajamin's inability to achieve meaningful growth of its insured portfolio and underwriting premiums over the medium to long term would also put pressure on the ratings.
Analytical contact
Ann Kimberly Lee
(603) 7628 1098
annkimberly@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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