FW: RAM Ratings reaffirms ratings of Tranches 1 to 5 of RCE Marketing-sponsored Class A Sukuk, upgrades ratings of Class B Sukuk

Published on 09 Nov 2018.

RAM Ratings has reaffirmed the ratings of the Class A Sukuk and upgraded the ratings of the Class B Sukuk for all tranches of the Sukuk Murabahah (the Sukuk) issued by  Al Dzahab Assets Berhad (the Issuer). Al Dzahab is a special-purpose vehicle that had been incorporated to undertake the securitisation of personal-financing (PF) facilities originated through the business partners of RCE Marketing Sdn Bhd (RCEM or the Originator).

All the rated classes of the Sukuk carry a stable outlook, except the Tranche 5 Class B Notes, the outlook of which has been revised from stable to positive (refer to table below). These facilities are backed by their own respective discrete portfolios of PF receivables from civil servants. As these receivables are paid through non-discretionary salary deductions processed by the Accountant General’s Department and Angkatan Koperasi Kebangsaan Malaysia Berhad (better known as Angkasa), the transaction’s exposure to the credit risks of the borrowers is significantly reduced, as long as the borrowers remain in active service.

Sukuk Murabahah	Issue Amount (RM million)	Rating/Outlook	Rating Action
Tranche 1
Class A	95.0	AAA/Stable	Reaffirmed
Class B	25.0	AAA/Stable	Upgraded from AA1/Positive
Total rated	120.0
Tranche 2
Class A	120.0	AAA/Stable	Reaffirmed
Class B	35.0	AAA/Stable	Upgraded from AA2/Positive
Total rated	155.0
Tranche 3
Class A	110.0	AAA/Stable	Reaffirmed
Class B	45.0	AAA/Stable	Upgraded from AA3/Positive
Total rated	155.0
Tranche 4
Class A	125.0	AAA/Stable	Reaffirmed
Class B	35.0	AAA/Stable	Upgraded from AA3/Stable
Total rated	160.0
Tranche 5
Class A	135.0	AAA/Stable	Reaffirmed
Class B	45.0	AA1/Positive	Upgraded from AA3/Stable
Total rated	180.0

 

The rating reaffirmation for all tranches of the Class A Sukuk is supported by the robust credit support available, which remains commensurate with an “AAA” stress scenario. The rating upgrade for all tranches of the Class B Sukuk is premised on their richer credit support, to a level supportive of a higher stress scenario under the revised ratings, primarily because of RAM’s revised default and prepayment assumptions for underlying portfolios. The positive outlook on the Tranche 5 Class B Notes reflects our expectation that its asset cover will improve to a level that corresponds to an AAA rating in the near term - if it maintains its current performance.  

The revision of RAM’s loss assumptions on Al Dhazab’s transactions follows our review of the Originator’s newer historical monthly static portfolios (between January 2014 and February 2018), and is premised on the improved and consistent loss experience demonstrated by the newer static pools. This is in line with our observation of the securitised portfolios under Al Dzahab and other rated transactions with similar receivables. These improvements had followed refinements on RCEM’s credit scorecard (launched in May 2013) that are more stringent and in line with applicable regulatory changes (e.g. a 10-year maximum loan tenure, and credit approval based on the borrowers' net debt-servicing capacity).   

While the contracts of some staff members have been terminated under the new government, RCEM’s exposure to contract staff is minor, at around 0.4% of its entire securitised portfolio. We also derive comfort from the Government’s assurance that it will not downsize the civil service and believe that the attrition rate for this segment will remain low. That said, the Government is studying the consolidation of agencies and ministries to avoid overlapping functions. This could result in higher incidences of transfers and, in turn, possibly more administrative delays in deductions. Prepayments may also deviate from our expectations, in the event the Government decides to extend the current retirement age. However, we believe this is unlikely at the moment as the Government is still considering all options and has indicated its priority of focusing on improving the country’s fiscal position and minimising its deficit. 

Analytical contact
Tan Han Nee
(603) 7628 1023 
hannee@ram.com.my

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

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