RAM Ratings assigns AA3 rating to Malaysia Debt Ventures
RAM Ratings has assigned corporate credit ratings of AA3/Stable/P1 to Malaysia Debt Ventures Berhad (MDV or the Company), a technology financier wholly owned by the Government of Malaysia (GoM) through the Minister of Finance (Incorporated) and the Federal Land Commissioner. The ratings are anchored by our expectation of government support in times of need, given the Company’s strategic role in supporting the government’s growth agenda for the local technology sector.
MDV was established in 2002 with a mandate to promote the development of the country’s ICT sector by addressing the funding needs of young technology companies – particularly SMEs – that are unserved or underserved by commercial banks. Since its early days of financing ICT companies, MDV’s mandate has broadened to encompass biotechnology and green technology as well as emerging and strategic technology.
From the time of its inception, the GoM has demonstrated strong support for MDV through a partial conversion of the latter’s debt to equity, the provision of government guarantees, funding cost subsidies and letters of support. The current government’s plans to achieve a balanced budget and reduce contingent liabilities may limit MDV’s government-guaranteed funding going forward. That said, we expect extraordinary support to be forthcoming if required, given its 100% ownership by the GoM and still-sizeable proportion of government-guaranteed borrowings; about 90% of the Company’s funding base as at end-March 2019 carried a guarantee. These factors coupled with the importance of the technology sector in Malaysia’s growth agenda, underscore the multi-notch uplift in MDV’s ratings – although the Company is not the sole entity spearheading the government’s technology agenda.
MDV’s financing book stood at RM1.2 bil as at end-March 2019, the bulk of which comprised financing related to green technology (50%) and ICT (39%) projects. In view of its public policy role, MDV’s financing portfolio is inherently riskier – as seen in the Company’s elevated gross impaired financing (GIF) ratios of above 20% in the last few years and its five-year average credit cost ratio of 3.5%. While MDV’s GIF coverage has trended upwards in recent years, the indicator was still relatively low at 73% as at end-March 2019, rendering its earnings and capital vulnerable to provisioning risk as the Company’s financing are typically secured by little or soft collateral. Elsewhere, MDV’s profit rate subsidy from the government for certain sukuk issuances will continue to ease funding costs although these issuances are gradually maturing up to 2023. MDV’s pre-tax profit came in at RM10.7 mil in fiscal 2018.