RCE Premier Sdn Bhd - 2009

MARC has affirmed the MARC-2 ratings of RCE Premier Sdn Bhd’s (RCEP) RM50.0 million Commercial Papers (CP) programme. The ratings carry a stable outlook. The affirmations are premised on the satisfactory performance of the securities’ underlying portfolios of receivables, and the maintenance of the minimum collateral cover of 1.3 times, supported by an undertaking from RCE Marketing Sdn Bhd (RCEM) to provide the requisite receivables/funds. In addition, the transaction benefits from the establishment of a master collection account to mitigate commingling risk, and at-source salary deductions by Angkatan Koperasi Kebangsaan Malaysia Bhd (Angkasa). The ratings are moderated by the expected slowdown in consumer spending which may dampen receivables growth, thus affecting RCEM’s ability to substitute ineligible receivables.

MARC has withdrawn its A rating on RCEP’s RM45 million Fixed Rate Serial Bonds with immediate effect following the full and final redemption on October 20, 2009 as confirmed by its facility agent, MIDF Amanah Investment Bank Bhd and subsequent cancellation of the facility.

RCEP, a special purpose company wholly-owned by RCEM, was incorporated for the purpose of periodically purchasing selected portfolios of eligible personal and consumer receivables from RCEM. The receivables consist of scheduled repayments (principal plus interest) of loans disbursed to government employees who are members of Koperasi Belia Nasional Berhad (Kobena) and Koperasi Sejati Berhad (KSB).  Each transfer of receivables to RCEP involves an absolute legal assignment of all of RCEM’s rights, title and interest in and to the receivables. 

RCEM’s creditworthiness as the provider of substitute receivables or funds remains a key rating consideration for the CPs. The transaction hinges on RCEM’s ability to originate performing substitute receivables or the necessary funds and/or to fund any shortfall in the sinking fund account. The bonds and notes are also secured by a corporate guarantee from RCE Capital Berhad (RCEB), RCEM’s ultimate holding company. MARC notes that since issuance, RCEM has provided sufficient receivables/funds to maintain the minimum collateral cover of 1.3 times.

RCEM, as the servicer under the transaction, administers and monitors collections from Angkasa. Funds in the cooperatives’ accounts are directly remitted to RCEP’s master collection account where the funds earmarked for coupon payment and principal redemption are then transferred monthly to the sinking fund account. Presently, RM6.0 million in CPs remain outstanding and are backed by identified eligible receivables (IER) of RM4.2 million. During the period under review (October 2008 to September 2009), actual collections surpassed scheduled collections, primarily boosted by monthly prepayments. The average monthly prepayment rate remained in line with expectations while collection performance was also satisfactory, recording average monthly delinquency and default rates of below 0.3% and 0.9% respectively. 

RCEM is principally involved in the provision of personal loans and consumer financing of electrical home appliances and other consumer durable products to cooperative members. RCEM’s exceptionally wide net interest margin of 14.3% in FY2009 (FY2008: 9.1%) reflects its low funding cost relative to interest rates charged which is partly attributable to its strong internal capital generation. As a non-deposit taking entity, the company depends heavily on internally generated capital and debt to fund loan growth. RCEM’s retained earnings have thus grown over the last four years at a compounded annual growth rate of almost 100% per annum. RCEM has also been relying on asset-backed transactions through a securitisation vehicle which has an issuance capacity of RM1.12 billion to fund loan growth. However, increased market aversion towards asset-backed transactions and likelihood of higher funding costs are likely to result in higher reliance on its internal capital and alternative financing means for future loan growths.

The company has maintained relatively good asset quality, with gross non-performing loan (NPL) and net NPL ratios standing at 3.5% and 0.8% compared to the industry’s average of 3.9% and 1.6% respectively as of March 2009, partly augmented by its good collection and disbursement system. RCEM currently operates with modest capitalisation.

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