MARC has affirmed the rating of AAA_IS on Cagamas MBS Berhad’s (Cagamas MBS) RM2,110.0 million asset-backed Sukuk Musyarakah issuance (CMBS 2007-1-i) with a stable outlook. The current outstanding under the sukuk issuance is RM1,255.0 million.

The key factors supporting the rating affirmation are CMBS 2007-1-i’s robust credit enhancement level, the low payment risk on the pool of government staff Islamic home financing (GSIHF) and the low default rates.

Cagamas MBS is a wholly-owned special purpose vehicle of Cagamas Holdings Berhad that acquired GSIHF under conventional and Islamic principles (Portfolio 2007-1-i) from the government by issuing asset-backed securities (CMBS 2007-1-i). The profit payment and principal redemption of CMBS 2007-1-i are being met by monthly instalments of Portfolio 2007-1-i through direct salary or pension deductions, which mitigates non-timely payment risks. Based on an outstanding principal of non-defaulted mortgages of RM1,440.1 million comprising 22,115 accounts and Collections Account (CA) balance of RM359.1 million credit, CMBS 2007-1-i’s enhancement level stood at a healthy 143.4%.

MARC notes that Portfolio 2007-1-i has continued to exhibit a low cumulative default rate (CDR) of 0.62% against MARC’s assumed CDR and stressed CDR of 3.56% and 10.69% respectively. Defined as accounts in arrears exceeding nine months, the defaults were largely due to administrative and technical delays arising from pending claims on mortgage reducing term takaful and confirmation of borrowers’ status after the cessation of home financing instalments.

The delinquency rate (accounts in arrears for three months or less) of the collateral pool during the current review period has declined from 8.00% as at October 31, 2014 (Quarter 31) to 1.93% as at January 31, 2016 (Quarter 36). The higher delinquency rate in Quarter 31 was attributed to data reconciliation lag as a result of migration to Lembaga Pembiayaan Perumahan Sektor Awam’s (LPPSA) new mortgage payment and recording system. Following the passing of the Public Sector Home Financing Board Act 2015, Bahagian Pinjaman Perumahan (BPP) has been replaced by LPPSA which is also under the Ministry of Finance, as the servicer of Portfolio 2007-1-i from January 1, 2016. MARC notes that there were no changes in the servicer’s operations as LPPSA has largely retained BPP’s existing resources and system. Nevertheless, LPPSA’s performance will be closely monitored for any changes to Cagamas MBS’ servicer risk.

For the period under review (November 1, 2014 – January, 2016), Portfolio 2007-1-i registered quarterly prepayment rates of between 0.38% and 0.53%, translating to an increase in cumulative prepayments to RM243.1 million (last review: RM207.9 million). The growth of cumulative prepayments is expected to remain slower in the near term due largely to sustained inflationary pressure, partly from the introduction of the Goods and Services Tax. While low prepayments potentially expose Cagamas MBS to liquidity risk, MARC’s sensitivity analysis indicates that the projected collection of Portfolio 2007-1-i is able to cover the RM400.0 million repayment on May 29, 2017 (Quarter 40) under an assumed high stressed default rate of three times and stressed prepayment (50.0% and 200.0% of the projected prepayment). The risk of negative carry as a result of higher-than-expected prepayments is addressed by the conditional pass-through provision that allows Cagamas MBS to redeem the sukuk early in reverse order with the last tranche being paid first subject to the availability of at least RM90 million in the CA post-redemption.

The stable outlook reflects MARC’s expectations of continued stable collateral performance supported by at-source salary or pension deductions and a sustained high credit enhancement level that remains supportive of the rating.

Contacts:
Neoh Jiun Yan, +603-2082 2263/ jiunyan@marc.com.my;
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.