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RAM Ratings reaffirms AAA rating of Tresor Assets Berhad’s Tranche F Senior Bonds, with stable outlook

Published on 02 May 2012

RAM Ratings has reaffirmed the AAA rating of Tresor Assets Berhad’s (“Tresor”) outstanding RM50 million Tranche F Senior Bonds (“Senior Bonds”), with a stable outlook; the RM25 million Tranche F Subordinated Bonds are not rated. The stable outlook reflects our view that Tranche F’s securitised loan pool (“the Portfolio”) will continue performing satisfactorily throughout the transaction’s tenure.

Tresor is a special-purpose vehicle set up to undertake a RM1.5 billion funding programme involving receivables purchased by RCE Marketing Sdn Bhd (“RCE Marketing”). Tranche F is the fourth issuance under this RM1.5 billion programme, which is secured against a pool of personal loans originated from Koperasi Wawasan Pekerja-Pekerja Berhad (“KOWAJA”). As at end-December 2011, the Senior Bonds were supported by RM50.75 million of outstanding receivables and RM61.87 million of cash and permitted investments that corresponded to a collateralisation level of 187.71%. Based on the available cash balances, Tresor should be able to make an early redemption on all of the outstanding Senior Bonds in June 2013.

The rating reaffirmation is premised on the available credit enhancement provided by the overcollateralisation level, the structural features of the transaction and the Portfolio’s performance. As at 31 December 2011, the cumulative net default rate of the receivables pool came up to 3.98% (as a percentage of the principal balance on the purchase date), compared to RAM Ratings’ base-case assumption of 5.36%. At the same time, the cumulative prepayment rate stood at 41.75%, i.e. within the cumulative high- and low-prepayment-rate scenarios. As at end-December 2011, the Portfolio’s principal balance was underpinned by 3,350 loans, with a weighted-average seasoning of 29 months; the average loan size worked out to RM15,150, with a weighted-average remaining term-to-maturity of 113 months.

To date, RCE Marketing - as the servicer of the transaction - has fulfilled its duties and obligations under the transaction. However, we note a potential weakening in the longer-term credit profile of RCE Marketing that could affect its ability to function as the servicer. RCE Marketing’s business model of providing personal loans to civil servants via co-operatives (“co-ops”) had been affected by several regulatory developments. The regulator of co-ops, Suruhanjaya Koperasi Malaysia (“SKM”), had earlier directed KOWAJA to halt its disbursement of new loans, only to lift the restrictions in June 2011 with revised conditions. SKM had also adopted Bank Negara Malaysia’s Responsible Financing Guidelines which, among others, restricts penalising borrowers for early settlement. Albeit the regulatory changes, RCE Marketing’s pre-tax profit for the 9 months ended 31 December 2011 recorded at RM34.43 million (FYE 31 March 2010: RM27.74 million).

We note that RCE Marketing has to date adequately performed its duties as the servicer, with monthly servicer reports received on a timely basis. Given the security arrangements under this transaction, the management of the relevant accounts relies heavily on RCE Marketing. Should RCE Marketing fail in its role as servicer, cashflow to the bondholders may be temporarily disrupted until a replacement servicer is appointed. Nonetheless, we opine that this risk is still manageable in view of RCE Marketing’s moderate credit profile.

Despite the uncertainties surrounding RCE Marketing’s future business and financial profile, RAM Ratings reiterates that the rating of the Senior Bonds is not affected because the performance of the underlying Portfolio and the security position of the bondholders remain intact. Essentially, receivables that had been securitised prior to the regulatory changes will not be affected. We highlight that the AAA rating addresses the likelihood of timely payment of coupons and ultimate payment of principal on the Tranche F bonds by their respective maturity dates; it does not indicate the likelihood of prepayment.

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

HLI fully redeems sukuk before maturity

Published on 03 May 2012

RAM Ratings has been informed that Hong Leong Industries Berhad (“HLI”) has redeemed the RM50 million of outstanding sukuk under its RM500 million Islamic Commercial Papers/Medium-Term Notes Programme (2008/2015). At the same time, the debt facility has been cancelled. Following this, RAM Ratings no longer has any rating obligation on the facility, which had previously carried AA3/Stable/P1 ratings.

Media contact
Woon Tien Ern
(603) 7628 1040
tienern@ram.com.my

Bursa Suq Al-Sila' Expands Commodity Offerings with RBD Palm Olein (By MIFC)

Bursa Suq Al-Sila' (BSAS), the world's first end-to-end Shariah-compliant commodity trading platform, has added RBD Palm Olein as a new commodity offering to meet greater demand from local and international players for commodity-based Islamic financing and investment. Trading in the new commodity began on 17 April 2012 and RM75 million (USD25 million) worth of trades have been recorded as of 23 April 2012.

The inclusion of RBD Palm Olein complements BSAS's existing commodities, namely the Crude Palm Oil and Plastic Resin. This will provide more diverse product offerings for clients trading on the BSAS platform and is in line with Bursa Malaysia's strategy to expand the range of tradable instruments on the Exchange.

Dato' Tajuddin Atan, Chief Executive Officer of Bursa Malaysia, said, "As the pioneering facilitator and early leaders in Islamic finance, Bursa Malaysia is in a unique position to advance the development of the Islamic capital market. The introduction of RBD Palm Olein on Bursa Suq Al-Sila' will provide more choices for clients and solidifies BSAS' position as a successful commodity trading platform to facilitate Islamic finance needs.

"We foresee this move to further boost trading volume and meet the demand for larger offerings particularly from clients in the Middle East. This will also increase the visibility of crude palm oil, the star crop in this region, and allow for greater participation from commodity players and refiners."

The daily average trading value on BSAS currently stands at RM1.5 billion (USD0.5 billion), a three-fold increase compared to 2010. BSAS has a membership base consisting of both local and international players.

"The development of the Islamic capital market is one of the Exchange's strategic priorities to propel Bursa Malaysia to be a leading marketplace in Asia. We will grow this segment further by enhancing and introducing innovative products and services to encourage more participation from the market," Dato' Tajuddin added.

BSAS is an international commodity platform that is able to facilitate commodity-based Islamic financing and investment transactions under the Shariah principles of Murabahah, Tawarruq and Musawwamah. This fully electronic web-based platform provides industry players with an avenue to undertake multi-commodity and multi-currency trades globally.

News Alert - May 3, 2012

1. KLCI rises 0.7pct on positive external factors
2. Bursa queries Cybertowers
3. Unisem posts net loss RM13.52m in 1Q
4. Aker Solutions gets subsea production system contract from Murphy Sabah Oil
5. Some Felda settlers look to court to quash signed documents
6. MAS, AirAsia back in competition
7. Astro's troubles with Lippo represent a cautionary tale for other Malaysian companies eager to do business in Indonesia
8. YTL Communications Sdn Bhd confirms 1Bestarinet project win
9. Malakoff acquires 40% of Bahrain's Hidd Power Co

Malaysia Showcases Islamic Finance Proposition at 9th IFSB Annual Summit in Istanbul (By MIFC)

Bank Negara Malaysia in support of the Malaysia International Islamic Financial Centre (MIFC) initiative, brings its Islamic finance experience to a global audience on 15 May 2012 when it hosts a landmark Country Showcase preceding the 9th Annual Summit of the Islamic Financial Services Board (IFSB) which is scheduled to be held at the Swissotel, The Bosphorus in Istanbul on 16 - 17 May 2012.

The theme of the Malaysia Country Showcase, 'Promoting Greater Financial and Economic Linkages through Islamic Finance', is consistent with the Government of Prime Minister Mohd Najib Abdul Razak's stated policy to foster greater cross-border cooperation and reach and at the same time to highlight the Malaysia's success story in the Islamic finance space.

The main session of the Showcase is a high-powered Business Panel Discussion, which will be moderated by Haslinda Amin, News Correspondent & Anchor at Bloomberg TV. The panelists include Ilker Ayci, President, Investment Support and Promotion Agency of Turkey (ISPAT); Tim Leissner, Co-President & Managing Director, Goldman Sachs (Singapore) Pte.; Azman Mokhtar, Managing Director, Khazanah Nasional ; and Mukhtar Hussain, Chairman, HSBC Amanah Malaysia.

In addition, three concurrent Business Roundtables will be held in the afternoon of 15 May at the Hilton ParkSA Hotel.

Dr Zeti Emphasises Economic Well-being Challenge of Islamic Finance at IDB Prize Acceptance Speech (By MIFC)

The advancements the Islamic finance industry has made in the last decade have resulted in wide-ranging new opportunities. However the globalisation of the Islamic finance industry needs to enhance the economic well-being of countries where it is widely prevalent, affirmed Dr. Zeti Akhtar Aziz, Governor of Bank Negara Malaysia (BNM), in her acceptance speech of the prestigious Islamic Development Bank (IDB) Prize in Islamic Banking and Finance for 2012 at an award ceremony held on 3 April 2012 during the 37th Annual Meeting of the IDB Board of Governors in Khartoum, Sudan.

"While the international dimension of Islamic finance will enhance the connectivity of our economy," emphasised Dr. Zeti, "our resolve, conviction and compassion will be needed to ensure that the greater interlinkages and thus increased interdependence will enhance economic well being. The benefits that it yields will be mutually reinforcing for our economies."

In his citation, Dr Ahmad Mohamed Ali, President of the IDB Group, commended Dr. Zeti for "her notable accomplishments and her valuable contribution, dedication and leadership in the development of the Islamic banking and finance industry, Takaful infrastructure and Shariah governance framework in and outside Malaysia; and her invaluable services in supporting the Islamic Financial Services Board (IFSB), the creation of International Centre for Education in Islamic Finance (INCEIF) and International Shariah Research Academy for Islamic Finance (ISRA), the establishment of the Malaysia International Islamic Financial Centre (MIFC), and lately the founding of the International Islamic Liquidity Management Corporation (IILM) in Kuala Lumpur".

Dr. Zeti stressed that in this more recent decade Islamic finance has presented a new phase of development as the industry shifts from being domestic in orientation into becoming increasingly internationalized. This shift has facilitated increased connectivity between the economies where Islamic finance is practiced, including greater movement of funds across borders from jurisdictions with surplus funds to regions with investment opportunities thus facilitating increased growth and development.

In addition, the sukuk market, in particular, has evolved into a truly international market, attracting the participation of issuers and investors across the globe and generating cross border flows. This is also fostering greater economic and financial flows of trade and investment which in turn enhances the growth potential of IDB member countries economies.

Dr. Zeti reminded her audience that the Islamic finance industry demonstrated its resilience during the recent global financial crisis, with the result that its progress has not been disrupted during this period. This resilience was due to the inherent strengths of the Islamic finance industry, reinforced by a cohesive cross border regulatory framework.

"However, given that the environment before us is being dramatically transformed, our resilience needs to be strengthened and supported by strong international collaboration and cooperation. This is perhaps the most challenging issue confronting Islamic finance, moving forward. Strategic collective efforts and concerted actions relating to the international Islamic financial architecture, institutional arrangements and mechanisms including for cross-border liquidity management, crisis management and resolution have yet to be developed. Its development will ensure strengthened resilience in this new environment and thus its sustainability," she advised.

Dr. Zeti thanked the IDB and its Prize Award Committee and stressed that it is a great honour to be the recipient of the IDB Prize in Islamic Banking and Finance for this year.

"I am most humbled to be presented with this award. It has been my privilege to be part of a truly remarkable journey in the development of Islamic finance, which has experienced a pace of growth and development that has been unprecedented in a highly difficult international environment. It has also been remarkable in that the Islamic financial industry has been dynamic and evolving to meet the rapidly changing requirements of the modern economy," she added.

The built-in checks and balances, the ethical values and the Shariah injunctions of Islamic finance that require financial transactions to be anchored to the real economy have guided the process towards responsible financial innovation that truly serves the real economy. Most important, however, she stressed, is that it serves every segment of society and scale of business. It therefore is a powerful channel to realize the financial inclusion agenda for the betterment of humanity.

The IDB Prize is awarded alternating between Islamic Economics and Islamic Banking and Finance. It was established in 1988 to recognize, reward and encourage the activity of outstanding merit in promoting Islamic Economics, Banking and Finance. During the last 24 years, the Prize has been awarded to 33 regulators, researchers, bankers, economists, Shariah scholars and institutions.

RAM Ratings reaffirms ratings of Al-‘Aqar Capital’s RM300 million sukuk

Published on 30 April 2012

RAM Ratings has reaffirmed the respective AAA, AA2, AAA(bg) and P1 ratings of Al-‘Aqar Capital Sdn Bhd’s (Al-‘Aqar Capital) Class A Islamic Medium-Term Notes (IMTN), Class B IMTN, Class C IMTN and Islamic Commercial Papers (ICP) under its RM300 million Sukuk Ijarah Programme; all the long-term ratings have a stable outlook. Al-‘Aqar Capital is a special-purpose vehicle incorporated solely for the acquisition of 11 hospitals (the Hospitals) leased to Al-‘Aqar Healthcare Real Estate Investment Trust and operated by KPJ Healthcare Berhad (KPJ Group or the Group).



The reaffirmation of the respective AAA, AA2 and P1 ratings of the Class A IMTN, Class B IMTN and ICP is premised on the debt service coverage as well as loan-to-value ratios that commensurate with the respective ratings, the transaction’s features and the sturdy cashflow generated by the hospital operators. Meanwhile, the reaffirmation of the Class C IMTN reflects the enhancement from a bank guarantee provided by Public Bank Berhad, whose AAA/stable/P1 financial institution ratings were reaffirmed by RAM Ratings on 15 June 2011.

Rental income derived from the Hospitals increased 3.7% year-on-year (y-o-y) to RM48.8 million in FYE 31 December 2011 (FY Dec 2011), i.e. above our stressed lease levels for the respective ratings. We note that rental revision takes place every 3 years, and is a function of the yields of 10-year Malaysian Government Securities and the market values of the Hospitals. Nevertheless, we derive comfort from the minimum lease payments under the lease terms which, collectively, are sufficient to cover the semi-annual profit payments to the Sukuk holders.

We note that the hospital operators are subsidiaries of KPJ Group – Malaysia’s largest private hospital group – with a track record of robust financial and operating performances. The operators of the 11 hospitals recorded an 8.9% y-o-y revenue growth in FY Dec 2011 (FY Dec 2010: +8.5%), mainly driven by more admissions, surgeries and outpatient treatments. We opine that the individual hospital operators should have minimal difficulty in meeting their lease payments, which have all been promptly settled to date. Given that the Hospitals are viewed to be strategic to the KPJ Group’s operations (the 11 establishments collectively contributed about 70% of the Group’s total revenue in FY Dec 2011), we expect ready support from the Group should the need arise.
Collectively, the market value of the Hospitals appreciated 6.0% y-o-y to RM708.7 million as at end-December 2011 (end-December 2010: RM668.8 million). This was chiefly due to the higher valuation of RM111.3 million for KPJ Johor Specialist Hospital (end-December 2010: RM77.6 million), following the completion of its additional 6-storey annex building. The valuations of the remaining assets were also marginally higher in 2011. Nonetheless, we opine that the disposal of the Hospitals, if required, may be a challenge given the specialised and illiquid nature of such assets. On the other hand, this is mitigated by the pool of 11 establishments that are geographically well distributed throughout Peninsular Malaysia.

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

News Alert - May 2, 2012

1. Boards of Khazanah and Tune Air today will make official their decision to abandon the RM1.1 billion share-swap deal involving MAS and AirAsia
2. Shares in port and logistics outfit NCB enjoy multi-year high; analysts advise caution
3. More equity than cash in RHB-OSK deal
4. Increasing payout ratio will support higher valuations for JT International

Dubai Sukuk paves the way for more issuances (By IFN)

See: http://redmoney.newsweaver.co.uk/mhq0672y3fyh38rwoni3wx?email=true&a=6&p=23665925&t=21154025

UAE: The Sukuk market, already at a high thanks to the record level of issuances sold in the year-to-date, is set to peak further this year as the Dubai government’s recent US$1.25 billion dual-tranche Sukuk offering is expected to pave the way for further sales from the UAE.

Dubai’s offering, seen as a landmark deal due to its speed-to-market despite the emirate’s near-default in 2009, emerged amid borrowing costs reaching record lows. The yield on the emirate’s previous five-year Sukuk issuance, sold in October 2009 and priced at 6.4%, has fallen to 4.13% in April; while the yield on Dubai Sukuk has also fallen to a record low of 4.08% in the same month.
Samer Mardini, the vice-president of fixed income and Islamic finance products at SJS Markets, is quoted as saying that the emirate paid “the cheapest price” for its latest Sukuk, reflecting the return of local and international investors to Dubai. “The sale will encourage other Dubai government-related entities to tap the bond market and there would be appetite for another Dubai sale,” he said.

The sale saw Dubai price a US$600 million, five-year tranche at 4.9% and a US$650 million, 10-year tranche at 6.45%; receiving bids worth more than US$4.5 billion, compared with the US$1.8 billion-worth of bids it received the last time it tapped the debt market, in a 10-year, US$500 million conventional bond sale last year.

The strong demand for the emirate’s latest offering is seen in part due to the government’s success in managing existing debt, with an estimated US$15 billion-worth due this year.
“With oil above US$100 a barrel, Dubai’s credit default swaps under the 400 mark and the success of the new issuance, I wouldn’t be surprised if this paves way for more issuances,” said Hussain Al Banna, the head of fixed income trading at Bahrain Islamic Bank.