RAM Ratings Reaffirms AA1 Rating of MBSB's Tranche 2 Structured Covered Sukuk
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RAM Ratings Reaffirms AA1 Rating of MBSB's Tranche 2 Structured Covered Sukuk
Mal, Receivables
Mal, Receivables
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- 10 /19/2016 Latest Announcement - (News ID : 2016101800022) Latest Announcement News ID : 2016101800022 Subject : MBSB Tranche 2 MBSB Tranche 2 Organisation Name: RAM RATING SERVICES BERHAD News Type: RATING ANNOUNCEMENT Reference Site: None Embargo Date: 18/10/2016 Embargo Time: 01:58 PM Expiry Date: 17/11/2016 Priority: Medium Summary: RAM Ratings reaffirms AA1 rating of MBSB's Tranche 2 Structured Covered Sukuk Attachments: No attachment available. Disclaimer: The user, including a user who is also a FAST Participant, expressly agrees that the use of this website which is accessible at https://fast.bnm.gov.my/ is at the user's sole risk. The information contained in this FAST website is compiled by MyClear Sdn. Bhd. (MyClear) and is provided on an "as is" basis without any representations or warranties of any kind, either expressed or implied. While MyClear makes every effort to ensure that information contained in the FAST website are accurate and disseminated in a timely and efficient manner, the user acknowledges that delays, errors, omissions or inaccuracies may occur. MyClear disclaims any liability pertaining to the consequences of any delays, errors, omissions or inaccuracies arising out of or relating to the FAST website or information, including but not limited to, any decision made or action taken by a user in reliance upon such information, or for damages suffered, whether direct, consequential, special, punitive, indirect or otherwise, notwithstanding having been advised of the possibility of such damages. In the event of any dispute, the official records of MyClear shall prevail. MyClear, Bank Negara Malaysia or any of its affiliates, officers, directors, agents or any other party involved in creating, producing or delivering the FAST website, shall not be liable for any direct, consequential, special, punitive, indirect, incidental or other damages arising out of or in any way connected with the use or inability to use the FAST website or information, whether based on contract, tort, liability or otherwise, even if advised on the possibility of any such damages. Content https://fast.bnm.gov.my/fastweb/public/PublicInfoServlet.do?chkBox=2016101800022&mode=DISPLAY&info=NEWS&screenId=PB010400 1/2
- 10 /19/2016 Latest Announcement - (News ID : 2016101800022) RAM Ratings has reaffirmed the AA1 rating of Malaysia Building Society Berhad's (MBSB) RM700 million Tranche 2 Structured Covered Sukuk (Tranche 2 Sukuk)Íž the transaction has a stable outlook. The Tranche 2 Sukuk's rating reflects a 4notch uplift from MBSB's longterm A2 financial institution rating (FIR). The reaffirmation of the rating is underpinned by sufficient collateral support in the form of an overcollateralisation (OC) ratio of 27.9% as at endJuly 2016, as well as RAM's assessment of the transaction's interruption risk (IRisk). While we anticipate the Tranche 2 Cover Assets to provide adequate support in an AA1 stressed rating scenario, any negative change in the Issuer's FIR or the transaction IRisk may result in a corresponding change in the Tranche 2 Sukuk's rating (please refer to this link for more information on MBSB's FIR). The Tranche 2 Cover Assets' performance remained better than assumed the cumulative net default rate as at endJuly 2016 stood at 0.98% compared to our basecase assumption of 1.85%. The underlying portfolio's average monthly prepayment rate of 0.30% is higher than our assumption, attributable to the refinancing of older receivables with remaining tenures of less than 10 years (more than 80% of the portfolio by outstanding principal balance). We expect prepayment rates to pick up as borrowers releverage, taking advantage of the recent salary increments for civil servants in July 2016. Nevertheless, the resultant cost of negative carry may be offset by MBSB's option of purchasing additional receivables and the serial redemption of the Tranche 2 Sukuk, making the transaction more sensitive to low prepayment rates. If prepayments were to be maintained at the current pace, we expect the transaction's Asset Coverage Ratio (ACR) and OC ratio to improve, particularly as it continues to deleverage in line with the next scheduled redemption of RM80 million in December 2016. The Tranche 2 Cover Assets consist of personalfinancing facilities for civil servants which had been originated by MBSB. As at 31 July 2016, the Tranche 2 Sukuk's OC ratio had risen to 27.9% (endSeptember 2015: 24.2%), supported by the portfolio's betterthanassumed performance. The OC ratio was backed by RM675.1 million of outstanding principal balance and RM182.1 million of cash and permitted investments. At the same time, the ACR stood at 126.7%, i.e. higher than the transaction's minimum requirement of 117.9%. On the other hand, the rating is moderated by commingling risk while transiting between MBSB's accounts and the transaction's Designated Accounts. While the sukuk holders have security over the Tranche 2 Cover Assets, their access to these assets may be delayed or frustrated in the event MBSB defaults. Nevertheless, we believe that the extent would be manageable given the frequency of transfers to the Designated Accounts and the strength of MBSB's credit profile. Since February 2016, the remittance of salary deductions by the Accountant General's Department have been taking place later in the month due to revised salary payment dates for civil servants. This is reflected in the temporary dips in the transaction's collection rates in February and April 2016, as well as deterioration in its delinquency profile in February 2016. However, these have since normalised. Analytical contact Media contact Chin Jin Han Padthma Subbiah (603) 7628 1168 (603) 7628 1162 jinhan@ram.com.my padthma@ram.com.my The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security's market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations. RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings' credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. Similarly, the disclaimers above also apply to RAM Ratings' creditrelated analyses and commentaries, where relevant. Published by RAM Rating Services Berhad © Copyright 2016 by RAM Rating Services Berhad https://fast.bnm.gov.my/fastweb/public/PublicInfoServlet.do?chkBox=2016101800022&mode=DISPLAY&info=NEWS&screenId=PB010400 2/2
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