[RAM] RAM Ratings upgrades Zamarad's Tranche 4 Class B Sukuk to AAA, revises outlook on Tranche 5 Class B to positive

RAM Ratings has upgraded the rating of Zamarad Assets Berhad’s (Zamarad or the Issuer) Tranche 4 Class B Sukuk Murabahah to AAA/Stable from AA2/Stable. We have also revised the rating outlook on Tranche 5 Class B Sukuk to positive from stable (see table). The ratings of both Class A and Class B Sukuk under Tranche 1 and 6 have been reaffirmed. Zamarad is a special-purpose vehicle incorporated to undertake the securitisation of personal financing (PF) facilities originated through the business partners of RCE Marketing Sdn Bhd (RCEM).

Each tranche of the Sukuk is backed by its own portfolio of PF receivables from civil servants. The PF facilities are repaid through non-discretionary salary deductions processed by the Accountant General’s Department via EXP Payment Sdn Bhd and Angkatan Koperasi Kebangsaan Malaysia Berhad, an apex cooperative. This reduces the transaction’s exposure to the customers’ credit risks, so long as they remain in active service.

The rating actions reflect the better than assumed default performance of the portfolios backing the respective tranches, resulting in solid credit support commensurate with the ratings of the respective classes. The positive outlook on the Tranche 5 Class B Sukuk is based on improving credit enhancement that is likely to support a higher rating in the near term. For Tranche 6, we expect the utilisation of excess cash reserves for the purchase of new receivables under the revolving option would at least preserve the required credit support for the existing issue ratings. RAM will reassess the ratings for any credit impact if the revolving option is exercised. Moving forward, the portfolios’ delinquency performance is anticipated to remain stable and within our assumptions in view of the non-discretionary salary deductions and low attrition rate in the civil service sector.

We note that prepayments were generally more volatile during the review period, with spikes observed due to the backlog in processing prepayment applications during the movement control order period and increased refinancing incentivised by promotional campaigns and/or lower profit rates. That said, overall prepayments of the portfolios were largely within our high and low stress assumptions. As the overnight policy rate is expected to rise following market recovery, prepayments will likely moderate as the rising interest/profit rate environment would disincentivise refinancing.

Analytical contacts
Zachary Tan
(603) 3385 2612

Lim Chern Yit
(603) 3385 2528