RAM Ratings reaffirms MBSB's RM700m Sukuk
KUALA LUMPUR: RAM Ratings has reaffirmed the AA1/Stable rating of Malaysia Building Society Bhd ![]()
’s (MBSB) RM700mil tranche two structured covered sukuk.
The rating agency said on Thursday the issue rating reflects MBSB’s long-term financial institution rating (FIR), the transaction’s “average” interruption risk (I-Risk), and the superior credit support accorded by the overcollateralisation (OC) level.
The factors support a four-notch rating uplift from the issuer’s long-term FIR.
For the purposes of this review, RAM has assumed that the I-Risk remains unchanged despite the ongoing merger discussions with Asian Finance Bank Bhd.
“We will reassess it when more details are made available, specifically on operational details with respect to the covered assets.
“While we opine that the tranche two cover assets will continue providing ample collateral cover for the transaction under an “AA1 stress” scenario, any negative change in the Issuer’s long-term FIR or the transaction’s I-risk may lead to a change in the rating of the tranche two Sukuk,” it said.
In this respect, RAM has reaffirmed MBSB’s long-term A2/Stable FIR.
The tranche two cover assets comprise personal-financing facilities for civil servants, originated by MBSB.
They continue to exhibit healthy credit quality – the cumulative net default rate stood at 1.14% as at end-May 2017 compared to our base-case assumption of 1.97%.
The underlying portfolio’s average monthly prepayment rate of 0.29% since issuance is higher than RAM's high-prepayment assumption of 0.16%.
“Although we note some tapering of monthly prepayments in recent months, we envisage prepayment rates to remain at these levels as 84% of the portfolio’s receivables have remaining tenures of less than 120 months (the maximum allowed for personal financing), thus allowing potential re-leveraging,” it said.
The tranche two Sukuk’s OC ratio of 36.11% as at end-May 2017 was backed by RM599mil of outstanding principal balance and RM204mil of cash and permitted investments.
“We note that the asset coverage ratio stood at 134.51% as at the same date, that is in compliance with the minimum requirement of 117.90%.
“The effects of negative carry resulting from prepayments are mitigated by the serial redemption of the tranche one Sukuk as well as the issuer’s option to purchase additional eligible receivables.
“As there are no plans for MBSB to utilise the excess cash balances to purchase additional receivables, these ratios are expected to continue improving, particularly after each scheduled redemption,” it said.
The rating agency said on Thursday the issue rating reflects MBSB’s long-term financial institution rating (FIR), the transaction’s “average” interruption risk (I-Risk), and the superior credit support accorded by the overcollateralisation (OC) level.
The factors support a four-notch rating uplift from the issuer’s long-term FIR.
For the purposes of this review, RAM has assumed that the I-Risk remains unchanged despite the ongoing merger discussions with Asian Finance Bank Bhd.
“We will reassess it when more details are made available, specifically on operational details with respect to the covered assets.
“While we opine that the tranche two cover assets will continue providing ample collateral cover for the transaction under an “AA1 stress” scenario, any negative change in the Issuer’s long-term FIR or the transaction’s I-risk may lead to a change in the rating of the tranche two Sukuk,” it said.
In this respect, RAM has reaffirmed MBSB’s long-term A2/Stable FIR.
The tranche two cover assets comprise personal-financing facilities for civil servants, originated by MBSB.
They continue to exhibit healthy credit quality – the cumulative net default rate stood at 1.14% as at end-May 2017 compared to our base-case assumption of 1.97%.
The underlying portfolio’s average monthly prepayment rate of 0.29% since issuance is higher than RAM's high-prepayment assumption of 0.16%.
“Although we note some tapering of monthly prepayments in recent months, we envisage prepayment rates to remain at these levels as 84% of the portfolio’s receivables have remaining tenures of less than 120 months (the maximum allowed for personal financing), thus allowing potential re-leveraging,” it said.
The tranche two Sukuk’s OC ratio of 36.11% as at end-May 2017 was backed by RM599mil of outstanding principal balance and RM204mil of cash and permitted investments.
“We note that the asset coverage ratio stood at 134.51% as at the same date, that is in compliance with the minimum requirement of 117.90%.
“The effects of negative carry resulting from prepayments are mitigated by the serial redemption of the tranche one Sukuk as well as the issuer’s option to purchase additional eligible receivables.
“As there are no plans for MBSB to utilise the excess cash balances to purchase additional receivables, these ratios are expected to continue improving, particularly after each scheduled redemption,” it said.
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