KUALA LUMPUR (July 31): Malaysian Rating Corporation Bhd (MARC) has affirmed its AAAIS and AA+IS ratings with a stable outlook on Danajamin Nasional Bhd’s Senior and Subordinated Sukuk Murabahah of up to RM2 billion under its Sukuk Murabahah programme.

At the same time, the rating agency has also affirmed Danajamin's financial strength rating of AAA and counterparty credit ratings of AAA/MARC-1.

In a statement today, MARC said the ratings affirmation continues to reflect Danajamin’s status as a Government-owned financial guarantee insurer (FGI) and perceived high support from the Government given its mandate to support the development of the Malaysian corporate bond market.

"The rating also incorporates Danajamin’s strong capitalisation and liquidity position that helps temper concerns on the increased credit risk of some issuers in its guarantee portfolio.

"The stable outlook assumes that Danajamin will continue to benefit from strong Government support; however, any increase in the overall risk profile would exert downward rating pressure on its standalone rating," MARC said.

MARC noted the declining trend of Danajamin's guarantee portfolio, but acknowledged that the insurer has taken initiatives to mitigate further contractions as well as diversify its earnings base. "The FGI expanded its guarantee scope to include providing guarantees on unrated issuances following its first on an unrated medium-term notes programme in 2018. For 1Q2019, two more guarantees were extended on unrated programmes; one related to the renewal energy sector and the other to the property sector’"  

As Danajamin has a modest insured portfolio standing at 23 issuers as at end-March 2019, MARC said the insurer remains exposed to sector and single client concentration risk. "Given the FGI’s expansion of its scope of underwriting activities and weakening credit quality of its guarantee portfolio, MARC expects Danajamin to exert tighter credit discipline through its risk controls to ensure the protection of shareholders’ capital and its solvency.”