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RAM Ratings issues update on Cendana Sejati’s RM360 million Senior Sukuk Murabahah MTN Programme

IM Insights
By IM Insights
4 years ago
RAM Ratings issues update on Cendana Sejati’s RM360 million Senior Sukuk Murabahah MTN Programme

Murabahah, Sukuk, Receivables, Reserves, Sales


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  1. IB Press Release Service Published on : IslamicBanker.com Publications: https://www.islamicmarkets.com/publications RAM Ratings issues update on Cendana Sejati’s RM360 million Senior Sukuk Murabahah MTN Programme 28 March 2018 RAM Ratings has issued an update on the rating of Cendana Sejati Sdn Bhd’s RM360 million Senior Sukuk Murabahah MTN Programme (2015/2025), following its review of the transaction’s performance and a meeting with the sponsor and originator of the transaction – Masraf Al Barakah Sdn Bhd. In December 2017, the Senior Sukuk’s rating had been downgraded to BB2 from AA1 and its outlook revised from stable to negative following material impairment to the credit support available to holders of the Senior Sukuk. As at 31 December 2017, RM70 million of the Senior Sukuk (comprising Tranche 1, Tranche 1A, Tranche 2 and Tranche 3 Senior Sukuk) was outstanding, together with RM9 million of Junior Sukuk. The Senior Sukuk is backed by a portfolio of consumer-financing receivables from civil servants, with a principal balance of RM68 million as at the same date. The Junior Sukuk is unrated and unsecured. The downgrade had followed a significant reduction of around 60% in monthly cashflow collections since January 2017. To address this, Masraf had proposed the implementation of a series of measures to moderate the cashflow shortfall. These included pursuing delinquencies through over-the-counter (OTC) payments or early settlements. Another measure would be to inject new, shorter-tenured receivables into the transaction via the staggered issuance of additional Junior Sukuk. IT infrastructure enhancement to facilitate these payments had been completed in January 2018, although OTC repayments remain minimal. However, while the underlying portfolio continues to be serviced by payroll deductions executed by the Accountant General’s office, we note only 2 monthly transfers by Coshare Holdings Berhad – a company related to Cendana Sejati and the collection agent for credit sales originated by Masraf through its salary-deduction mechanism – into the transaction’s designated accounts. Collections from March 2017 through to February 2018 have yet to be transferred pending the reconciliation of individual accounts, exacerbating the transaction’s commingling and liquidity risks. Given these new developments, we estimate that the transaction should have sufficient cash flow based on the portfolio’s current performance and available cash reserves to meet the next 2 years’ profit payments. Nevertheless, given the larger than expected shortfall in collections, a default on the RM10 million principal due in February 2021 is likely. We continue to view the BB2 rating as reflective of the execution and ramp-up risks involved. The negative outlook indicates the high likelihood of further multi-notch downgrades as the Senior Sukuk’s respective maturities approach. RAM will continue to closely monitor the transaction’s performance and the Originator’s commitment to ensuring the continued performance of the transaction, and reassess the impact accordingly. The Senior Sukuk had been issued together with Cendana Sejati’s Junior Sukuk under its Junior Sukuk Murabahah MTN Programme, to fund the purchase of consumer-financing receivables originated by Masraf. These receivables arise from credit sales to public employees
  2. IB Press Release Service Published on : IslamicBanker.com Publications: https://www.islamicmarkets.com/publications for the purchase of products. The source of repayment of the Senior Sukuk comprises collections by Coshare through its automatic salary-deduction mechanism. Organisation Name: News Type: RAM Rating Services Berhad RATING ANNOUNCEMENT Source: RAM Press Release Media Contact: Padthma Subbiah (603) 7628 1162 padthma@ram.com.my Disclaimer 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.