RAM Ratings has reaffirmed the AAA/Stable rating of Cagamas MBS Berhad's RM2.11 billion Sukuk Musyarakah Islamic residential mortgage-backed securities (2007/2027) (CMBS 2007-1-i). Cagamas MBS is a limited-purpose entity incorporated for the purpose of securitising government staff housing loans and government staff Islamic home-financing facilities (GSIHFs).
The reaffirmation of the rating is based on CMBS 2007-1-i's available credit enhancement in the form of a 43.14% overcollateralisation (OC) ratio as at 31 July 2014 (31 July 2013: 34.62%). The higher OC ratio is primarily attributable to the deleveraging of the transaction, as the RM270 million Tranche 3 Sukuk was redeemed on its maturity date of 29 May 2014. As at the reporting date of 28 November 2014, RM1,255 million remained outstanding. The OC ratio was supported by RM150.26 million of cash and permitted investments and RM1.65 billion of outstanding mortgage receivables. This provides sufficient protection against the risk of prepayment and defaults on the underlying portfolio of GSIHFs under an "AAA" stressed scenario, as well as negative variance on investment returns.
During the reviewed period, the transaction performed within our expectations; the securitised portfolio's cumulative default rate stood at 0.44% as at 31 July 2014, against our base-case assumption of 4.32%. We note that the better-than-assumed default performance had eased the liquidity pressure arising from the underlying GSIHFs' lower-than-assumed cumulative prepayment rate of 7.53%. Meanwhile, the respective half-month bonus and financial assistance awarded to civil servants and pensioners under Budget 2015 will likely increase disposable incomes this year. Nevertheless, we do not expect significant changes in the prepayment levels of CMBS 2007-1-i given the below-market interest rates of the GSIHFs. Moreover, default risk is moderated by the GSIHFs' non-discretionary repayment structure.
As at 31 July 2014, the portfolio of GSIHFs comprised 23,149 accounts, with an average outstanding balance of RM71,110. The weighted-average term to maturity of the CMBS 2007-1-i pool stood at 14.01 years as at the same date.
As reported by the media on 10 April 2015, the Malaysian Parliament approved the setting up of a new body corporate (the Public Sector Home Financing Board) through a new Bill passed - the Public Sector Home Financing Board Act 2015 - which was tabled for its first and second reading on 26 March and 2 April, respectively. This would, in effect, convert Bahagian Pinjaman Perumahan (BPP) - a division within the Ministry of Finance and the primary unit servicing this transaction - into a statutory body, with full autonomy in the governance of its finances and workforce. Under the new Bill, the new body corporate will take over the responsibility of collecting and recovering government home-financing facilities from BPP and will be self-financing (e.g. via cashflow from home-financing facilities or borrowings). We do not foresee major changes to the transaction's servicing quality in the immediate term despite potential administrative issues that may arise during the transition period. Nevertheless, RAM will continue to monitor the developments on this front and the potential impact, if any, on the transactions.
Media contact
Chin Jin Han
03-7628 1168
jinhan@ram.com.my
© Press Release 2015
