RAM Ratings Assigns Final AAA/Stable and AA3/Stable Ratings to RCE-Sponsored Tranche 3 Sukuk

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1. IB Press Release Service Published on :​ ​ IslamicBanker.com Publications: h ​ ttps://www.islamicmarkets.com/publications RAM Ratings Assigns Final AAA/Stable and AA3/Stable Ratings to RCE-Sponsored Tranche 3 Sukuk 6 March 2017 RAM Ratings has assigned final AAA/Stable and AA3/Stable ratings to Al Dzahab Assets Berhad's (the Issuer) RM105.0 million Class A Sukuk and RM45.0 million Class B Sukuk, respectively. These represent the third issuance under Al Dzahab's RM900.0 million Sukuk Murabahah Asset-Backed Securitisation Programme (the Programme); the first 2 issuances were completed in June (RM120.0 million Tranche 1 Sukuk) and September 2016 (RM155.0 million Tranche 2 Sukuk). Similar to previous tranches, this issuance will be collateralised by personal-financing (PF) facilities (extended to civil servants) originated by RCE Marketing Sdn Bhd (RCEM) through its business partners. These facilities are repaid via non-discretionary salary deductions processed by the Accountant General's Department and Angkatan Koperasi Kebangsaan Malaysia Berhad, thereby substantially insulating the transaction from the credit risks of the borrowers as long as they remain in active service. RAM's cash flow assessment indicates that the underlying portfolio will be able to meet full and timely payment of the financial obligations of Tranche 3 under respective ''AAA'' and ''AA3'' stress scenarios for the Class A and Class B Sukuk. The RM105.0 million Class A Sukuk and RM45.0 million Class B Sukuk will be backed by receivables with outstanding principal value of RM171.0 million and RM4.3 million of cash reserve balance, translating into respective overcollateralization ratios of 66.9% and 16.9%. We observe that RCEM's receivables ageing profile remained stable during the review period; monthly collections for its PF facilities were kept steady at above 100% in 2016 (2014-2015 average: 99.6%). The default performance of the securitised portfolios was also in line with our assumptions, albeit limited by a short track record. Given the relatively recent salary increments and the resetting of the minimum monthly wage (from RM850 to RM1,200) for civil servants effective July 2016, we expect to see more loan applications and a pick-up in prepayments in the coming months, as borrowers take advantage of their higher loan limits. Notably, monthly prepayment rates for the portfolios backing Tranche 1 and Tranche 2 have been trending upwards in recent months, although they remain within our low- and high-prepayment stress assumptions. However, we believe that the extent of releveraging is unlikely to trigger the same levels of prepayment experienced in the past, given that the loan amounts are capped at a percentage of their net salaries, with a maximum loan tenure of 10 years compared to the previous 20 years.
2. IB Press Release Service Published on :​ IslamicBanker.com Publications: h ​ ttps://www.islamicmarkets.com/publications Al Dzahab is a special-purpose vehicle incorporated to undertake the securitisation of receivables originated through the business partners of RCEM. Under the Programme, the Issuer will, from time to time, issue sukuk to fund its acquisition of PF portfolios. Stop-issuance trigger events prohibit further issuance under the Programme should the Servicer's ability to perform its obligations including servicing the PF facilities become impaired. Organisation Name: News Type: RAM Rating Services Berhad RATING ANNOUNCEMENT Source: BNM Announcements 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' credit-related analyses and commentaries, where relevant.