KUALA LUMPUR: RAM Ratings reaffirmed its AAA/Stable/P1 ratings on Danajamin Nasional Bhd, reflecting the firm’s likely support from the Malaysian government.
Danajamin is Malaysia’s sole financial guarantee insurer owned by the Minister of Finance Incorporated and Bank Negara. Its mandate is to stimulate and further develop the Malaysian bond and sukuk market.
The ratings also recognise the company’s sturdy capitalisation, fully backed by Tier-1 capital. As at end-June 2015, its post-dividend capital-adequacy ratio (CAR) exceeded 300%, a level sufficient to withstand several concurrent defaults, said RAM in a statement on Wednesday.
It has access to RM1bil of callable capital, if it needs. The company’s projected leverage is estimated to remain at 4 times as at end-2015, which RAM said is comfortable for its rating level.
As at end-August 2015, Danajamin’s insured portfolio stood at RM7bil, with RM5.6bil outstanding.
Due to its mandate of enabling lower-rated issuers to tap into the capital market, its portfolio naturally entails higher-credit risks.
“Coupled with a small portfolio of 23 insured issuers and its monoline focus, Danajamin is further exposed to a relatively higher degree of concentration risk and to the economic and business stress of sectors within its coverage. Nevertheless, we take comfort in the portfolio’s credit profile which has remained benign to date and the company’s diligent portfolio monitoring,” it said.
RAM added that new-deal flow has been tepid amid the lethargic bond market in 2015, with only 1 new origination during the last 8 months to August. If prolonged over a sustained period, this would give rise to concern over Danajamin’s ability to generate sufficient returns to support its business operations and mandate.
The company has been exploring various initiatives to facilitate market development, including the introduction of partial and temporary credit guarantees and cooperation with other FGIs.
These initiatives are, however, still in the initial stages and results are yet to be seen.
RAM said the ratings could change if it believes Danajamin would cease to benefit from a “very high” likelihood of extraordinary support from the Government.
Other key negative rating triggers include a significant deterioration of the company’s leverage and CAR (to below 220%) arising from adverse claims. Danajamin’s ability to sustain meaningful growth in its guarantee business would also be a factor in this regard, the ratings agency added.
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