Tuesday, July 13, 2010

Cagamas issues RM5b Islamic det notes

KUALA LUMPUR: Cagamas Berhad's (Cagamas) has issued Islamic Commercial Papers Programme (CP) and Islamic Medium Term Notes Programme (MTN) with a combined aggregate limit of RM5.0 billion in nominal value.

Malaysian Rating Corporation Bhd said on Tuesday, July 13 it had assigned its MARC-1ID and AAAID ratings to the CP and MTN programmes.

Below is the statement issued by MARC
The outlook on the ratings is stable. Concurrently, MARC has affirmed its MARC-1/MARC-1ID and AAA/AAAID ratings on Cagamas' existing RM20.0 billion Conventional and Islamic CP Programme and RM40.0 billion Conventional and Islamic MTN Programme. The stable outlook on the ratings is maintained.

Cagamas' first issuance under the new aforementioned programmes to the Sukuk holders will be known as Sukuk al-Amanah Li al-Istithmar or Sukuk ALIm; where each Sakk represents the proportionate right to the undivided interest in the Sukuk Trust.

The assets placed in the Asset Trust will eventually comprise PROPERTIES [] leased to and managed by Cagamas based on the Al-Ijarah principle and Al-Wakalah principle respectively, and receivables payable by Cagamas on a deferred basis under the Al-Bai' Bithaman Ajil principle.

Cagamas bears the responsibility for making timely and regular Sukuk repayments from the net lease payments (upon entering the Ijarah and service agency agreements) and/or the periodic payments due from the commodity transaction.

Pursuant to the maturity of the Sukuk, Cagamas will be appointed as an agent to sell the asset certificate which represents the undivided interest in the Asset Trust to meet outstanding principal and final profit payments due to the Sukuk holders, or alternatively, the Sukuk holders would receive the outstanding principal and final profit payments from the final net lease payment from the properties and/or final instalment payment from the commodity transaction.

MARC views the Sukuk as ultimately being supported by Cagamas' creditworthiness. Accordingly, issuances under both programmes are assigned the same 'MARC-1/AAA' rating as Cagamas' conventional unsecured debt.

The ratings reflect Cagamas' strong financial profile evident from its stable earnings generation and healthy capitalisation, its role as the national mortgage corporation and its ownership structure, with Bank Negara Malaysia being the single largest shareholder with a 20% stake.

At the same time, MARC also notes that the interest rate sensitivity of Cagamas' operations continues to be a challenge for the company.

Meanwhile, due to the evolving nature of the domestic financial sector, Cagamas is striving towards introducing innovative products to the market while at the same time ensuring its risk management and corporate governance practices are in order to ensure that additional risks are kept at acceptable levels.

Cagamas' outstanding loans and debts continue to be supported by its Purchase With Recourse (PWR) and Purchase Without Recourse (PWOR) assets.

As at year end December 31, 2009 (FY2009), Cagamas' portfolio of outstanding loan and debts stood lower at RM20.6 billion (FY2008: RM22.3 billion), with PWR assets accounting for 45% of loan and debt assets, while PWOR assets accounted for the remaining 55%.

Despite the larger proportion of PWOR assets and its associated risk, Cagamas constantly applies strict eligibility criteria on the purchase of PWOR assets. Cagamas' lower loan and debts amount at year-end was a result of higher maturity during the year.

Purchases of assets in FY2009 amounted to RM10.8 billion (FY2008: RM11.6 billion) as financial institutions (FI) exhibited a lower propensity to raise funding through Cagamas as a result of the ample liquidity in the banking sector.

Nevertheless, Cagamas is persistent in enticing the FIs with their PWR scheme, particularly to lock-in sales of assets at current rate prior to the expected normalisation of interest rates.

Profitability continued its upward trend on the back of healthy growth (+31.5%) in net interest income, particularly due to the lower cost of funding during the year despite the higher overhead expenses and allowance for impairment losses on its mortgage assets.

The healthy profit performance was also supported by Cagamas' Islamic operations which recorded a 40.7% growth in income to RM109.1 million (FY2008: RM77.5 million) in tandem with the growth of its Islamic mortgage assets. Consequently, Return on Asset (ROA) for the year edged higher to 1.3% (FY2008: 0.9%).

Cagamas' capitalisation for the year remained healthy albeit on a downward trend, with core capital ratio at 17.8% (FY2008: 20.9%) and risk-weighted capital ratio at 18.4% (FY2008: 21.2%).

MARC believes that Cagamas' capital base, although well above regulatory minimum, is facing downward pressure due to the increasing proportion of PWOR assets which carry a higher risk weight than PWR assets.

Meanwhile, Cagamas' funding remains stable with ready access to the domestic debt market ' a key rating positive.

The stable outlook on the ratings incorporates Cagamas' strong financial profile, enhanced risk management as well as the strong support framework in place.

MARC views support in the event of need could be extended by the government in order to preserve Cagamas' vital role and maintain financial system stability. Bank Negara Malaysia is the single largest shareholder of Cagamas with a 20% equity stake.

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