MARC has affirmed the A and MARC-2 ratings of RCE Premier Sdn Bhd’s (RCEP) RM45.0 million Fixed Rate Serial Bonds and up to RM50.0 million Commercial Papers (CP) programme, respectively. 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.

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 bonds and CPs. The transaction hinges on RCEM’s ability to generate performing substitute receivables or the necessary funds to top up 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, RM15.0 million bonds and RM9.0 million CPs remain outstanding. As at October 31, 2008, the balances in the designated accounts for the bonds stood at RM8.1 million, more than half of the RM15.0 million bonds due to be redeemed in October next year, while the designated account balances for the CPs amounted to RM2.1 million. 

During the period under review (October 2007 to September 2008), 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 0.4% 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 revenue in FY2008 continued on an uptrend, reporting a 35% growth on the back of a larger portfolio of receivables. Operating profit margin remained strong but suffered a marginal decline to 50.7% (FY2007: 56.5%) in line with the higher funding costs associated with its subsidiaries’ securities issuances. Consequently, RCEM’s debt-to-equity ratio rose to 3.5 times. Going forward, RCEM’s profit will likely be more volume-driven with the narrowing of its interest margins. Although the company’s unaudited results show a slight decline in gearing to 3.4 times as at September 30, 2008, MARC expects RCEM’s gearing to remain high in view of the continued reliance of its subsidiaries on borrowings to fund the generation of receivables.

Contacts:
Azlina Mohamed Noor Beg, 03-2090 2254/ azlina@marc.com.my;
Afidah Shahbudin, 03-2090 2269/ afidah@marc.com.my