31 December 2015

RAM Ratings has reaffirmed the AA1/stable rating of Cendana Sejati Sdn Bhd's (Cendana) RM360.0 million Senior Sukuk Murabahah MTN Programme. The reaffirmation of the rating is premised on the available collateral cover supporting the Senior Sukuk under an AA1 stress scenario, as well as our expectation that the transaction's liquidity shortfall in ensuring timely repayment of the outstanding Senior Sukuk will be remedied within the next year, through additional Senior and Junior Sukuk issuances.

Given the uncertainty of the sukuk drawdown, the transaction remains vulnerable to potential liquidity risk. Although the outstanding RM50.0 million of Senior Sukuk remains sufficiently collateralised, the slower-than-expected drawdown from the Senior Sukuk Programme has resulted in a liquidity shortfall of approximately RM4.7 million in ensuring timely redemption of the outstanding RM50.0 million of Senior Sukuk maturing on 22 April 2022. Nonetheless, based on Masraf Al Barakah Sdn Bhd's (Masraf) latest drawdown plan, the shortfall is expected to be remedied within the next year via issuances of additional Senior and Junior Sukuk.

As at end-August 2015, the outstanding Senior Sukuk was supported by RM92.7 million of outstanding receivables and RM5.0 million in cash and permitted investments. The resultant available collateralisation ratio of 196% is consistent with the default, prepayment, dilution and commingling stresses applied under an 'AA1-stress' scenario. It also takes into consideration cashflow falling outside the Senior Sukuk's tenure, and additional financing costs in the event of a rate hike - the profit rate of the outstanding Senior Sukuk of 5.65% is well within our assumed stressed weighted-average profit rate of 6.35%. As such, we deem the minimum Portfolio OC Ratio of 173% as appropriate for now, provided that the transaction's liquidity shortfall in ensuring timely repayment of the Senior Sukuk is remedied within the next year.

In view of the recent first issuance of the Senior Sukuk on 24 April 2015, our observation of the securitised receivables' performance was limited to approximately 4 months, during which there had been no default or prepayment. While Masraf's servicing responsibilities had been largely met, with a healthy average monthly collection rate of 100.0%, some data inconsistencies were observed in the monthly servicer reports. Furthermore, we note that the transfer of funds from the Collection Account to the Liquidity Reserve Account (LRA) for the profit payment due in October 2015 had not been conducted on a timely basis. Having said this, we understand that the full profit payment sum due in April 2016 has been remitted to the LRA ahead of schedule. As these initial hiccups were observed to have been immaterial and resolved, we expect Masraf's servicing quality to remain satisfactory moving forward.

The Senior Sukuk is issued together with Junior Sukuk to fund the purchase of eligible consumer-financing receivables originated by Cendana's parent company, Masraf. As a relatively new credit provider with a less than 3-year history, Masraf has originated RM111.70 million of consumer-financing facilities to eligible civil servants. The transaction's source of repayment is civil servants' salaries that are automatically deducted at source via Coshare Holdings Berhad - a related company of Cendana - through its Program Ansuran Coshare.

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Media contact
Daniel Wong
(603) 7628 1172
danielwong@ram.com.my

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