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Rating Action:

Moody's affirms A3 ratings of Cagamas Berhad; outlook stable

08 Feb 2018

Singapore, February 08, 2018 -- Moody's Investors Service has affirmed the A3 local and foreign currency long-term issuer ratings and Prime-2 (P-2) local and foreign currency short-term issuer ratings of Cagamas Berhad.

At the same time, Moody's has affirmed the (P)A3 foreign currency senior unsecured medium term note (MTN) program ratings of Cagamas Global P.L.C. and Cagamas Global Sukuk Berhad, as well as the A3 foreign currency senior unsecured debt rating of Cagamas Global P.L.C.

Both Cagamas Global P.L.C. and Cagamas Global Sukuk Berhad are wholly-owned subsidiaries of Cagamas Berhad, and their principal activity is to raise funds for Cagamas Berhad.

The ratings outlook is stable.

RATINGS RATIONALE

CAGAMAS BERHAD

The A3 long-term issuer ratings incorporate Cagamas Berhad's strong capitalization, good asset quality and stable profitability.

It also takes into consideration its unique policy role and status that underpin Moody's expectation of high support from the Government of Malaysia (A3 stable), which results in a one-notch rating uplift from its baseline credit assessment (BCA) of baa1.

Cagamas Berhad's issuer ratings and outlook are in line with those of the Malaysian government, and are likely to move in tandem with any movement in the sovereign's rating and outlook.

Its standalone credit profile, as shown by its BCA of baa1, reflects its track record of strong capitalization, above-industry-average asset quality, and stable profitability.

The company reported a Common Equity Tier 1 capital ratio of 21.4% as of the end of June 2017, well above its internal minimum requirement of 15%. Its gross 90-day past-due asset ratio as of the end of December 2016 (most recent available) was 0.4%. The ratio compares favorably with the weighted-average gross-impaired loan ratio of 1.6% for rated Malaysian banks.

The BCA also takes into consideration the company's reliance on wholesale market funding and the small liquidity buffer available on its balance sheet to overcome any unanticipated tightening in liquidity.

Importantly, Moody's acknowledges the strength of the company's funding strategy -- to closely match the duration and maturity of its assets and liabilities -- and its ability to access the capital market for funding, as demonstrated in previous economic down-cycles. As an "approved interbank institution", the company is able to access the central bank's standing liquidity facility for funding, should the need arise.

Cagamas Berhad - established by Bank Negara Malaysia, the central bank of Malaysia - commenced operations in 1987 as Malaysia's national mortgage corporation to support the national objective of increasing home ownership and promoting the development of Malaysia's debt capital market.

The expectation of high government support is based on Cagamas Berhad's (1) unique policy role in Malaysia since its establishment in 1986; (2) close linkages with the central bank and the government; as well as (3) high systemic importance in the Malaysian financial sector, given its significant linkages with other Malaysian financial institutions and its prominent role in the domestic debt capital market.

CAGAMAS GLOBAL P.L.C.

The (P)A3 senior unsecured MTN program rating and the A3 senior unsecured debt rating are positioned at the same level as the A3 long-term issuer rating of Cagamas Berhad.

The notes issued out of the MTN program are fully and unconditionally guaranteed by Cagamas Berhad. The notes represent direct, unsubordinated and unsecured obligations of Cagamas Berhad. As such, they rank pari passu with Cagamas Berhad's existing and future unsecured and unsubordinated obligations.

Moody's has analyzed the guarantee provided by Cagamas Berhad for the MTN program, and has concluded that the terms and conditions of the guarantee satisfy Moody's core principles of guarantees.

CAGAMAS GLOBAL SUKUK BERHAD

The (P)A3 rating assigned to the foreign currency senior unsecured sukuk issuance program is in line with Cagamas Berhad's A3 foreign currency long-term issuer rating.

The sukuk certificates issued from the sukuk issuance program will represent Cagamas Berhad's direct, unsubordinated and unsecured obligations. As such, they will rank pari passu with Cagamas Berhad's existing and future unsecured and unsubordinated obligations.

The rating also reflects Moody's opinion that the sukuk certificate holders effectively have a claim against Cagamas Berhad, ranking pari passu with other senior unsecured obligations.

Similarly, the sukuk certificate holders are not exposed to the performance risk of the sukuk assets and do not have preferential claim or recourse over the sukuk assets, or rights to cause any sale or disposition of these assets, except as expressly provided under the transaction documents.

WHAT COULD CHANGE THE RATING UP/DOWN

The A3 and (P)A3 ratings will be upgraded if the Malaysian government's A3 sovereign rating is upgraded, assuming Cagamas Berhad's standalone credit metrics remain robust.

The ratings could be downgraded if: (1) the sovereign rating is downgraded; and/or (2) Cagamas Berhad's rating is downgraded due to a deterioration in its standalone credit strength.

The methodologies used in these ratings were Finance Companies published in December 2016, and Government-Related Issuers published in August 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Headquartered in Kuala Lumpur, Cagamas Berhad reported total assets of MYR38.9 billion ($9.1 billion) as of the end of June 2017.

Incorporated in Labuan, Malaysia, Cagamas Global P.L.C. is a wholly-owned subsidiary of Cagamas Berhad, and its principal activity is to serve as a fund raising vehicle of Cagamas Berhad.

Incorporated in Malaysia, Cagamas Global Sukuk Berhad is a wholly-owned subsidiary of Cagamas Berhad, and its principal activity is to serve as a fund raising vehicle of Cagamas Berhad.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Simon Chen
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gene Fang
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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