[RAM] RAM Ratings assigns preliminary AA2 rating to Koperasi Co-opbank Pertama's inaugural Structured Covered Sukuk

RAM Ratings has assigned a preliminary rating of AA₂/Stable to the RM500 mil Tranche 1 Structured Covered Sukuk (Tranche 1 sukuk) to be issued under Himayah Sukuk Berhad’s (the Issuer) RM5.0 bil Structured Covered Sukuk Wakalah Programme. Himayah Sukuk is a wholly owned non-operating subsidiary of Koperasi Co-opbank Pertama Malaysia Berhad (CBP), established to facilitate the sukuk issuance. CBP is also the obligor, servicer and transaction administrator for the sukuk programme.

This is the first structured covered sukuk to be issued by a cooperative bank and second such transaction in Malaysia. The Structured Covered Sukuk is a form of covered bond as the sukukholders have dual-recourse, first to CBP as the Obligor, and secondly to a pool of receivables (cover assets) through a guarantee provided by Iltizam Aset Berhad (the Kafalah Provider) which kicks in upon the occurrence of Obligor’s default.

CBP is Malaysia’s second-largest cooperative bank (rated A₃/Stable/P2 by RAM – click here). The Kafalah Provider is a special-purpose vehicle held in trust by CBP as the share trustee to guarantee the Issuer’s obligations under the Structured Covered Sukuk. The guarantee will be backed by cover assets which comprise a portfolio of eligible personal financing (PF) receivables extended by CBP to civil servants. The PF receivables will be repaid through non-discretionary salary deductions processed by Angkatan Koperasi Kebangsaan Malaysia Berhad (Angkasa) – the apex body of the Malaysian Cooperative Movement.

The preliminary rating is notched up from CBP’s rating, taking into account the credit support provided via the guarantee and the transaction’s “average” interruption risk. For transactions with “average” interruption risk, RAM’s rating criteria for covered bonds/sukuk allows for up to four-notch uplift from ratings of the obligor, provided it is supported by the requisite level of collateral support via the guarantee.

For Tranche 1 sukuk, the guarantee will be backed by a portfolio of PF receivables with an outstanding principal balance of approximately RM662.25 mil and prefunded cash reserve in the liquidity reserve account at issuance. While our cashflow analysis indicates that the resultant overcollateralisation (OC) ratio of 32.45% can withstand losses of AA₁ stress, the Tranche 1 sukuk’s rating is capped by the four-notch uplift limit from CBP’s rating.

To protect the interests of sukukholders, the transaction incorporates an asset coverage test (ACT) that requires OC to be maintained at the minimum of 32.45%, as well as various Stop-Issuance Triggers to stop further issuances. An ACT breach that is not remedied within six months will constitute an Issuer event of default.

That said, the transaction is exposed to commingling risk as cash flow from the cover assets are first deposited with CBP before being segregated and transferred to the designated account for the transaction. While the sukukholders have security rights over the cover assets, access to these assets may be interrupted in the event CBP becomes insolvent. We believe these risks are moderated by the frequency of transfers and liquidity reserve to bridge any transitory cashflow interruption when cash flow switches from CBP to the cover assets. The required reserve amount will increase if the sukuk rating drops to BBB₁ or below.

The final rating is subject to RAM’s review of the transaction’s documentation, including the legal and tax opinions.

For more details on RAM’s rating approach for covered bonds, please refer to our publication here.


Analytical contacts
Liew Kar Ling
(603) 2708 8216
karling@ram.com.my

Lim Chern Yit
(603) 2708 8302
chernyit@ram.com.my

Media contact
Sakinah Arifin
(603) 2708 8212
sakinah@ram.com.my