MARC Ratings has affirmed its rating of AAA_IS on Cagamas MBS Berhad’s RM2,110.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2007-1-i) with a stable outlook. 

The rating incorporates CMBS 2007-1-i’s strong credit enhancement level of 329.0% as at the reporting date of November 29, 2022, based on the outstanding principal of non-defaulted home financing of RM640.1 million, and combined cash and permitted investments of RM313.9 million. The sukuk programme currently has an outstanding amount of RM290.0 million.

Cagamas MBS was established to undertake the securitisation of conventional and Islamic home financing originated by the Malaysian government. CMBS 2007-1-i is backed by a pool of government staff Islamic home financing (GSIHF), or Portfolio 2007-1-i. Direct monthly salary/pension deductions form the source of repayment for CMBS 2007-1-i. 

The collateral pool performance of CMBS 2007-1-i has remained strong, reflected by the portfolio’s historically low cumulative default rate (CDR) of 0.19% of the initial pool balance, well below the initial projection. The GSIHF defaults, classified as accounts in arrears for more than nine months, were mainly due to pending assessment on the status of borrower accounts as well as pending claims on mortgage reducing term takaful (MRTT). 

To address any risk of negative carry arising from higher-than-expected prepayments, the pool’s transaction terms allow for prepayments of the last two tranches upon meeting certain conditions. This option has not been exercised as the conditions have not been met. In particular, cash flow arising from the excess prepayments remained short of the projected amount while the outstanding principal of about 25.4% of the initial principal outstanding during the current review period is higher than the threshold of 10% that is required to allow for prepayment.

The stable outlook reflects the sustained high credit enhancement level of CMBS 2007-1-i, among other key factors; the outlook is not expected to change over the redemption period.