CREDIT ANALYSIS REPORT

DANAJAMIN NASIONAL BERHAD - 2020

Report ID 60560 Popularity 157 views 16 downloads 
Report Date Jul 2020 Product  
Company / Issuer Danajamin Nasional Bhd Sector Finance
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Rationale
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 affirmed the ratings of AAAIS and AA+IS on the Senior and Subordinated Sukuk Murabahah of up to RM2.0 billion under Danajamin’s Sukuk Murabahah programme. The outlook on all ratings is stable.

The IFS rating affirmation reflects Danajamin’s status as a government-owned financial guarantee insurer (FGI), its strong capitalisation and healthy liquidity position. The rating continues to incorporate MARC’s view of perceived strong government support to Danajamin as a key factor in notching up its rating to AAA from its standalone rating.

Danajamin has continued to face challenges to grow its guaranteed portfolio given the weakening economic environment which will be exacerbated by the measures implemented to combat the COVID-19 pandemic. In 2019, it secured six new deals with a total approved limit of RM610 million (2018: four deals; RM561 million). However, with the cancellation of four guarantee facilities amounting to RM1.6 billion, the total approved insured limit and outstanding guarantee amount declined to RM5.6 billion and RM4.2 billion (2018: RM6.6 billion; RM4.9 billion). The number of guaranteed issuers stood at 23 at end-2019. Danajamin is also growing other business lines, namely investor guarantee (bondholders may directly purchase protection from Danajamin) and financing facilities guarantees (provides protection to lending institutions). However, these business lines are in the nascent stages of operations. Danajamin will also earn fee income to administer the RM50 billion PRIHATIN guarantee scheme that was set up by the government to support businesses affected by the COVID-19 outbreak.

In 2019, the FGI experienced its first crystallisation of a guarantee, which was on an issuer in the oil and gas (O&G) sector and had led to the recognition of RM80.4 million worth of claim liabilities. This resulted in a significant fall in Danajamin’s profitability, with its net profit registering RM3.2 million (2018: RM119.2 million). Over the near term, profitability will be under pressure given the moderating guarantee portfolio as well as a potential increase in its credit risk given the weakening economic environment which has been exacerbated by the COVID-19 pandemic. Additionally, the sharp cuts in the overnight policy rate (OPR) will weigh on the FGI’s investment yields.

Danajamin is well capitalised as reflected by its capital adequacy ratio of over 400%, significantly higher than the minimum regulatory requirement of 130%. Its net leverage ratio stood at 2.20x, 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 80.4% of total investments as at end-2019.

Major Rating Factors

Strengths
Government-sponsored sole financial guarantee insurer; 
Sound governance structure; and
Strong liquidity position.

Challenges/Risks
Potential heightening of credit risk of some issuers; and
Contracting guarantee portfolio size. 

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