RAM Ratings: MBSB Covered Sukuk's AA1 Ratings Intact Despite Amended and Restated Portfolio Balances

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1. Media Release RAM Ratings : MBSB Covered Sukuk’s AA1 ratings intact despite amended and restated portfolio balances As part of RAM Ratings’ surveillance of Malaysia Building Society Berhad’s (MBSB or the Servicer) outstanding Structured Covered Sukuk under its RM3 billion Structured Covered Sukuk Murabahah Programme, our previous reviews had highlighted instances of data inconsistency in the servicer reports provided by MBSB. To date, a total of RM2,995 million has been issued through 4 successive tranches under the Programme - all carrying AA1/Stable ratings. In that regard, MBSB has performed a one-off amendment and restatement to the respective reported portfolio balances, and intends to supersede all monthly servicer reports issued earlier. RAM understands that the differences are largely attributable to the application of MBSB's reporting module and the computation of the portfolios’ weighted-average balances. Based on the restated figures, the available credit support provided by the relevant underlying collateral against the respective outstanding sukuk remains intact, thus supporting the AA1/Stable ratings. Besides, the overall performance of the securitised receivables (as measured by the monthly default rates and prepayment rates) remains satisfactory while the transaction still complies with the stated covenants, including the minimum required Asset Coverage Ratio (ACR). Structured Covered Sukuk Tranche 1 Sukuk Tranche 2 Sukuk Tranche 3 Sukuk Tranche 4 Sukuk * As at May 2016 Outstanding Amount RM370 million RM670 million RM865 million RM900 million Collateralisation Ratio* 154.5% 128.7% 145.8% 143.7% In 2 of the transactions (i.e. the Tranche 1 and Tranche 3 Sukuk), the restated portfolio balances have led to differences in the actual outstanding principal at issuance. Notably, the restated portfolio balance for the Tranche 3 Sukuk at financial close is RM7.85 million lower than originally reported. Nonetheless, we observe that the reported ACR at issuance - although lower than the original 138% - remains in compliance with the transaction's required minimum ACR of 137%. RAM will keep monitoring the transaction for further lapses in the servicer’s quality – if any - and reassess the transaction's I-risk, if necessary. We have rated MBSB's
2. Structured Covered Sukuk on a notch-up basis from the issuer 's long-term financial institution rating (FIR), as described in our criteria paper, RAM's Approach on Analysis of Covered Bonds (published August 2013). MBSB's A2/Stable/P1 FIRs were reaffirmed on 18 August 2016. Media contact Lim Chern Yit +603 7628 1035 chernyit@ram.com.my Date of release: 18 August 2016 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’ credit-related analyses and commentaries, where relevant. Published by RAM Rating Services Berhad  Copyright 2016 by RAM Rating Services Berhad