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MARC has assigned long-term and short-term counterparty credit ratings of AAA/MARC-1 to Credit Guarantee and Investment Facility (CGIF) with a stable outlook. CGIF was established as a trust fund of the Asian Development Bank in November 2010 by the ten member countries of the Association of Southeast Asian Nations (ASEAN) and Japan, the People’s Republic of China (PRC) and Korea (ASEAN+3) and Asian Development Bank (ADB). CGIF’s principal mandate is to develop and strengthen local currency and regional bond markets in the 13 member countries of ASEAN+3 by providing guarantees for corporate bonds issuances of investment grade-rated ASEAN+3 domiciled corporations. CGIF is a key component of the ASEAN+3 Asian Bond Market Initiative (ABMI) which aims to foster the development of local currency bond markets as an alternative source of funding to short-term foreign currency loans and consequently improve regional financial stability.
CGIF’s ratings reflect an evaluation of factors relevant to its financial strength as a newly established multilateral credit guarantee facility, in particular its mandate and strategy, its capitalization, liquidity, risk management framework, governance structure, and potential support from member countries. The counterparty credit ratings on CGIF reflect MARC’s assessment of the Facility’s financial strength on a national rating scale.
The assigned ratings primarily reflect CGIF’s high level of paid-in capital (which represents 100% of subscribed capital), conservative leverage policy and the expected credit quality of its guarantee portfolio. CGIF’s 13 member countries and ADB had contributed 100% of its subscribed initial authorized capital of US$700.0 million by end-April 2012, somewhat mitigating CGIF’s lack of callable capital. Over 90% of CGIF’s capital is owned by highly creditworthy member countries and ADB. These countries (PRC, Japan, Republic of Korea, Malaysia and Singapore) are rated single-A and above on an international scale. MARC expects CGIF to mitigate much of the credit risk stemming from its guarantee operations by implementing clear and robust credit processes, adhering to established risk management policies and practices and keeping a tight focus on underwriting and pricing discipline. Further providing
Strengths Conservative leverage and liquidity management policies and practices; Underwriting policy targets minimum investment grade underlying credit quality; Sound governance structure; and Multilateral status and strong support from main shareholders for its mandate of facilitating market access by investment grade-rated entities.
Challenges - Dependence on robust local currency bond markets and demand for credit enhancement to provide sufficient market opportunities to underwrite adequately priced low-risk business over time; and
- Developing a significant level of core earnings.
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