MARC has affirmed its ratings of AAAIS and AA+IS on Danajamin Nasional Berhad’s (Danajamin) Senior and Subordinated Sukuk Murabahah of up to RM2.0 billion under its Sukuk Murabahah programme. Concurrently, the rating agency has affirmed its insurer financial strength rating of AAA and counterparty credit ratings of AAA/MARC-1 on Danajamin. The outlook on all ratings is stable.
The key rating drivers are Danajamin’s status as a government-owned financial guarantee insurer (FGI), its strong capitalisation and sound liquidity position. The one-notch rating differential between the Senior and Subordinated Sukuk Murabahah reflects the subordination of the latter to the senior obligations of Danajamin. The stable ratings outlook incorporates MARC’s expectations that Danajamin will maintain its credit profile aligned to its current ratings as the FGI seeks to improve its business prospects that may involve introducing new financial guarantee products.
Danajamin has continued to face challenges in growing its guarantee portfolio which has been affected by sizeable early redemptions and programme cancellations. In 2017, the FGI secured three new deals with a total approved limit of RM1.2 billion, an improvement over the two deals with a total approved limit of RM785 million in the previous year. However, largely due to a programme cancellation of RM1.4 billion, the total approved limit declined to RM7.1 billion by end-6M2018 (2017: RM8.3 billion). Its outstanding guarantee amount stood lower at RM5.0 billion (2017: RM6.1 billion).
Danajamin has recently expanded its guarantee scope that includes providing financial guarantees on unrated issuances. During 6M2018, it has provided financial guarantees on two unrated issuances. MARC expects Danajamin to maintain sufficient risk mitigations against any potential increase in credit risk as a result of the business expansion. Given Danajamin’s modest insured portfolio of 23 issuers as at end-June 2018, it remains exposed to sector and single client concentration risk; toll roads and power accounted for 10.9% and 16.7% of its total net outstanding guarantee amount as at end-June 2018 while exposures to real estate (property investment) and property development (build to sell) stood at 11.1% and 9.8%.
For 2017, Danajamin’s net earned premiums declined by 9.0% y-o-y to RM81.8 million. This decline combined with an increase in finance costs of subordinated sukuk issuances in October 2017, contributed to a decrease of 9.0% y-o-y in net profit to RM114.2 million. Danajamin’s capitalisation has grown stronger with the issuance of the subordinated sukuk which qualified as its tier 2 capital. Its capital adequacy ratio, which stood at above 400.0% as at end-December 2017 (March 2017: above 300.0%), is significantly higher than the minimum regulatory requirement of 130%. As at end-March 2018, net leverage ratio stood at 2.68x, well below the maximum leverage of 7.5x.
Danajamin’s liquidity position has remained strong, as reflected by its investment portfolio which mainly comprises investments in short-term money market deposits and low-risk assets. These investments stood at 84.3% as at end-March 2018, well above its internal policy requirement of at least 50% of total investments in short-term money market deposits and low-risk assets.
Contacts: Lee Kar Xuan, +603-2717 2964/ karxuan@marc.com.my; Joan Leong, +603-2717 2934/ joan@marc.com.my; Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my
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