MARC Ratings assigns AAAIS/AA+IS ratings on MBSB Bank’s RM2.295 billion Structured Covered Sukuk Murabahah facility

MARC Ratings has assigned ratings to MBSB Bank Berhad's Structured Covered Sukuk Murabahah as follows:

• Tranche 2 and Tranche 3 at AAA_IS
• Tranche 4 at AA+_IS

All the tranches carry a stable outlook.

The AAA_IS ratings on Tranche 2 and Tranche 3 are premised on their fully cash-collateralised positions. As at end-June 2024, Tranche 2 had RM210.8 million in its designated account against an outstanding of RM50.0 million; Tranche 3 had RM254.2 million in cash balances in its designated account against a balance of RM90.0 million. The final redemptions of Tranche 2 and Tranche 3 are scheduled for December 10, 2024, and May 29, 2025.

For Tranche 4, the AA+_IS rating reflects a three-notch uplift from MBSB Bank's financial institution rating of A+, in accordance with MARC Ratings' notching approach to structured covered sukuk. Tranche 4 is partly cash-collateralised at 61.0% as at end-June 2024, against a total outstanding of RM360.0 million.

MBSB Bank had set up the RM2.295 billion structured covered sukuk facility as part of a sukuk exchange exercise to facilitate the transfer of all Islamic assets and liabilities of the holding company, MBSB Berhad, to MBSB Bank. The issuance has a dual-recourse feature that provides sukukholders a direct recourse to (1) MBSB Bank as the senior unsecured creditor upon default, and (2) Jana Kapital Sdn Bhd, a special-purpose vehicle that has provided a guarantee on the cover assets. Jana Kapital is held in trust by MBSB Bank.

MARC Ratings notes that the cover assets backing Tranches 2, 3 and 4 consist of personal financing facilities extended to civil servants. The personal financing facilities are repaid through non-discretionary salary deductions administered by Angkatan Koperasi Kebangsaan Malaysia Berhad. Under this arrangement, financing payments are deducted at source from the monthly salaries of the civil servants, thereby substantially minimising delinquency rates. This notwithstanding, as Tranche 2 and Tranche 3 are fully cash-collateralised, the ratings are no longer constrained by the credit profile of MBSB Bank.

In terms of Tranche 4, it had a total outstanding of RM360.0 million as at end-June 2024, backed by RM716.3 million of total outstanding principal balance and RM219.9 million cash in designated accounts. While it is not yet fully cash-collateralised, MARC Ratings draws comfort from the sizeable receivables backing Tranche 4 and the strong credit profile of the project sponsor. As at end-June 2024, MBSB Bank's CET1 and total capital ratios stood at 16.7% and 20.9%.