RAM Ratings reaffirms Malaysia Debt Ventures’ AA3 rating
RAM Ratings has reaffirmed Malaysia Debt Ventures Berhad’s (MDV or the Company) corporate credit ratings of AA3/Stable/P1, premised on our expectation of strong government support. MDV is a technology financier wholly owned by the Government of Malaysia (GoM) through the Minister of Finance (Incorporated) and the Federal Land Commissioner.
MDV is deemed highly strategic to the GoM in view of its role in promoting the growth of Malaysia’s ICT sector, although the Company is not the only entity spearheading the nation’s technology agenda. The Company was established in 2002 with a mandate to address the funding needs of young technology companies – particularly SMEs – that are unserved or underserved by commercial banks.
The GoM’s strong backing for MDV has been demonstrated since its inception. This was evident from the partial conversion of the latter’s debt to equity, government guarantees, sukuk programme funding cost subsidies and letters of support for the Company’s debt facilities. Considering the present government’s focus on fiscal consolidation and paring down contingent liabilities, the Company is envisaged to gradually reduce reliance on government-guaranteed funding and raise funds independently in the capital market. Nonetheless, sturdy government support is still anticipated to be forthcoming if required.
Amounting to RM1.0 bil as at end-December 2019 (end-December 2018: RM1.3 bil), MDV’s financing book had contracted further, owing to several large early redemptions from completed solar projects and have been subsequently refinanced by commercial banks. The Company’s portfolio was mostly composed of financing related to green technology (45%) and ICT (49%) projects, which are largely backed by the assignment of contract proceeds. The bulk of these contracts are secured from government and government-related agencies as well as large corporates.
MDV’s gross impaired financing (GIF) ratio which has hovered above 20% in the last few years reflects its inherently riskier portfolio, given its developmental mandate. Amid a challenging economic backdrop, the Company has offered some of its borrowers (64% of total financing) a six-month deferment of financing repayments. In fiscal 2019, the Company’s credit cost ratio clocked in at 1.9% (fiscal 2018: 2.4%) while its GIF coverage ratio stood at a relatively low 61% as at end-December 2019. MDV’s financing facilities are commonly secured by limited or soft collateral.
Aided by a wider net financing margin and reduced impairment charges, MDV’s pre-tax profit was a slightly better RM12.5 mil in fiscal 2019 (fiscal 2018: RM10.7 mil). That said, the Company’s earnings and capital remain susceptible to impairment risks in view of its relatively weak financing loss absorption buffers, with poor pre-provision earnings and a low level of coverage. Any significant decline in collateral values could necessitate additional provisions, which may subject MDV to capital erosion. On this note, the Company’s gearing ratio of 4.1 times as at end-December 2019 is still considered sound vis-à-vis its risk profile.
Chow Kah Mun
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(603) 3385 2577