CREDIT ANALYSIS REPORT

DANAJAMIN NASIONAL BERHAD - 2021

Report ID 605389031 Popularity 116 views 22 downloads 
Report Date Aug 2021 Product  
Company / Issuer Danajamin Nasional Bhd Sector Finance
Price (RM)
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Rationale
Rating action     
MARC has affirmed its insurer financial strength (IFS) rating of AAA and counterparty credit ratings of AAA/MARC-1 on Danajamin Nasional Berhad (Danajamin). Concurrently, the rating agency has affirmed its ratings of AAAIS and AA+IS on the Senior and Subordinated Sukuk Murabahah of up to RM2.0 billion under its Sukuk Murabahah programme. The ratings outlook is stable. 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 programme currently has an outstanding amount of RM500.0 million.

Rationale     
The affirmed IFS rating is driven by Danajamin’s status as a government-owned financial guarantee insurer and perceived strong support from the government. The rating also considers the company’s strong capitalisation and healthy liquidity position.

In recent years, the growth of Danajamin’s guarantee portfolio has been weighed down largely by economic conditions as businesses deferred expansion plans. As at end-2020, Danajamin’s insured portfolio stood at 18 issuers (2019: 23 issuers); it concluded one new deal in the property development sector with an approved limit of RM35 million during the year (2019: five deals; RM565 million). However, it also had redemptions and cancellations of guarantees worth RM1.5 billion from six issuers in the period which had affected its performance in 2020. The total approved insured limit and outstanding guarantee amount declined to RM4.1 billion and RM3.4 billion (2019: RM5.6 billion; RM4.2 billion).

In 2020, Danajamin recorded net profit of RM76.3 million, up from RM3.2 million in 2019 which was affected by claim liabilities worth RM80.4 million related to an oil and gas issuer. Additionally, cuts in the overnight policy rate (OPR) have affected the company’s investment yield.

In terms of exposure, the toll roads and highway sector accounted for 26.0% of its total net outstanding guarantee while exposure to the property sector (real estate and property development) as well as construction and building materials stood at 21.7% and 12.0%. Danajamin is growing other business lines, namely investor guarantee (bondholders may directly purchase protection from Danajamin) and financing facilities guarantee (these provide protection to lending institutions). However, the take-up rates of these business lines have been low due to the impact from the COVID-19 pandemic. Furthermore, Danajamin is prioritising the RM50 billion PRIHATIN guarantee scheme that was set up by the government to support businesses affected by the COVID-19 pandemic.

Danajamin is well capitalised as reflected by its capital adequacy ratio of over 500% as at end-2020, significantly higher than the minimum regulatory requirement of 130%. Its net leverage ratio improved to 1.73x, well below the maximum leverage of 7.5x while liquidity has remained strong. Its investment portfolio mainly comprises investments in short-term money market deposits and low-risk assets. These investments stood at 80.8% of total investments as at end-2020.

Rating outlook    
The stable outlook assumes that Danajamin will remain as a government-owned entity and receive government support if and when required.

Rating trajectory

Downside scenario     
The rating could experience downward pressure if there is an explicit decline in financial and/or operational support from the government.

Key strengths
Sole government-sponsored financial guarantee insurer
Sound governance structure
Strong liquidity position

Key risks
Potential heightening of credit risk of some issuers
Challenges in growing guarantee portfolio size


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