Cagamas Berhad
National Mortgage Corporation of Malaysia
Presentation to the International Conference on Affordable Housing & Mortgage Financing
Organized by State Bank of Pakistan, Islamabad.
Mortgage Based Securitisation & Other Market Based Instrument & Finance
- Cagamas Experience
S. Shanmuganathan
Senior Vice President
28 May 2015
Content
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2
Securitisation in Malaysia Defined
About Cagamas Berhad
Securitisation of Government Staff Housing Loan : Case Study
Key Highlights
Issues and Challenges
Impact of Subprime Crisis on Securitisation
Key success factors
Other market Based Instruments - Mortgage Guarantee Program
Role and Impact of Cagamas
Securitisation in Malaysia Defined
Securitisation: Definition *

An arrangement which involves the transfer of assets or risks
to a third party where such transfer is funded by the issuance
of debt securities or Islamic securities to investors

Payments to investors in respect of such debt securities or
Islamic securities are principally derived, directly or indirectly,
from the cash flows of the assets
* Guidelines on the Offering of Asset-Backed Securities issued by the Securities Commission of Malaysia (July 2004)
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About Cagamas Berhad
About Cagamas Berhad
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6
Established in 1986 as the National Mortgage Corporation of Malaysia to promote
home ownership and growth of the secondary mortgage market in Malaysia.
Cagamas issues competitively-priced debt securities to finance the purchase of
housing loans/financings from primary lenders
Prolific
Issuer
 2nd largest issuer of debt securities after the Government of Malaysia
 Largest issuer of AAA debt securities in the Malaysian market
 Cumulatively issued RM277.1 billion of debt securities since inception with no default
experience
 Regarded by World Bank as most successful secondary mortgage liquidity facility model
Outstanding
Credit
Standing
 Cagamas debt securities continue to be assigned credit ratings of AAA by RAM Rating
Services Berhad (RAM) and Malaysian Rating Corporation Berhad (MARC)
 No rating downgrade even during the Asian financial crisis
 Tenure extend up to 20 years and serves as benchmark for other Private Debt Securities
(PDS)
Multi
Currency
Funding
Platform
 Assigned local and foreign currency long-term issuer ratings of A3 by Moody's Investors
Service which are on par with Malaysia’s sovereign ratings
 An alternative funding source and allows for widening of investor base to include foreign
investors
Innovative
and Award
Winning
Transactions
 2010: RM1 billion Sukuk al-Amanah Li al-Istithmar (Sukuk ALIm) being the 1st transaction
of its kind in the world
 2007: RM600 million Synthetic Securitisation of SME Loans being the 1st transaction in
the ASEAN region
 2005: RM2.05 billion Sukuk Musyarakah Residential Mortgage-Backed Securities
(RMBS) being the 1st rated transaction in the world
Cagamas Business Model
PWR (Liquidity) Model
PWOR (Securitisation) Model
ORIGINATORS
Purchase
assets
with
recourse
$
Sales
proceeds
Purchase
assets
without
recourse
CAGAMAS
BERHAD
Sells
Cagamas
Bonds/Sukuk
$
Bonds/Sukuk
proceeds
Sells
Cagamas
Bonds/Sukuk
INVESTORS
PWR – Purchase With Recourse
PWOR – Purchase Without Recourse
7
$
Sales
proceeds
Asset
Warehousing
$
Bonds/Sukuk
proceeds
Purchase
assets
without
recourse
$
Sales
proceeds
CAGAMAS
SPV
Sells ABS/
Undertakes Synthetic
Securitisation
Purchase With Recourse
Purchase with Recourse Structure
Issue debt securities/Sukuk
by private placement
Investors
Grants loans /
financing facilities
Customer
Sells loans/
financing facilities
Bank
Cash
Cagamas
Cash/Bonds/Sukuk
Lead Managers
Issue debt securities/Sukuk
by book building process
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Purchase with Recourse (PWR)
What is purchase with recourse:
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
Financial Institution (FI) sells loans/financing facilities to Cagamas
No obligation to repurchase at outset. At review date, Cagamas offers a
revised rate. If the rate is not acceptable, the loans/financing facilities are
repurchased.
Institutions we deal with:
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Financial Institutions
Development Financial Institutions
Islamic Financial Institutions
Government of Malaysia
Selected corporations as approved by Board
Other sellers as agreed by Intermediary financial institutions under the
back-to-back arrangement
PWR Facilities & Options
Fixed Rate
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Purchase for price review periods of 1 to 10
years
Cagamas rate fixed for the entire review period
Floating Rate
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Purchase for price review periods of 1 to 7
years
Floating Cagamas rate pegged at 3 or 6 month
KLIBOR plus margin for the entire review
period
Cagamas rate is reset once every 3/6 month
depending on the benchmark
Repayment Option
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FI can elect to pay Cagamas instalment by way
of:

Principal and Interest/Profit;
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Interest/Profit only with bullet payment
of principal
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Payment frequency:
Monthly

Quarterly

Half-Yearly
Salient Features:
Transfer of beneficial ownership
Seller remain the registered holders & act as servicer
and custodian of security documents
FI remain the registered holder and custodian of
security documents
Pay scheduled instalment to Cagamas regardless
whether customer pays
Excess of lending rate over Cagamas rate will be
retained by FI
Repurchase and replace loans/financing which are
non-compliant during the contract period
On maturity, the FI has the option to
repurchase the loans/financing if it does not agree to
the new Cagamas rate offered
- induce the FI to sell
- FI do not have to commit themselves for the
remaining life of the loan/financing
PWR Retained Functions
Retained Functions of the Approved Seller
• Collect monthly installments from borrowers
in respect of loans/ financing purchased by
Cagamas
• Take follow-up actions on delinquent
loans/financing
• Maintain accurate loans/financing accounting
records
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Benefits of PWR
13
Financial Institution
Consumers
 Obtain liquidity at a
competitive cost to
originate more loans/
financing facilities and
enhance lending
operations
 Hedge interest/profit rate
risks
 Tapping the capital market
through Cagamas
bonds/Sukuk which is
rated AAA
 Fast turnaround time with
standardised
documentation
 Obtain easy access to
loans/financing facilities at
reasonable cost
 Obtain attractive and
affordable loans/financing
packages characterised
by low interest/profit rates
for the initial years
Govt. and the Economy
 Helps to achieve its policy
of encouraging home
ownership
 Makes housing
loans/financing more
affordable to the lower
income group without any
interest/profit subsidy being
incurred by the authorities
 Encourages property
development and related
spin-off effects
Securitisation of Government Staff Housing Loans :
Case Study
Mandate from the Government

In April 2004, the Government of Malaysia mandated Cagamas to
undertake the securitisation of its staff housing loans/financings
over a period of time
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Objectives of securitisation programme
 Increase the depth and breadth of the domestic capital market
 Promote asset-backed securities (ABS) as a new tool for raising funds
from the capital market
 Create a pricing benchmark for Malaysia’s ABS market

Since 2004, 5 issues of Residential Mortgage-Backed Securities
(RMBS)
 3 Conventional RMBS issuances: RM6 billion
 2 Islamic RMBS issuances: RM4.2 billion
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Key Transaction Parties
Key Transaction Parties
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Issuing Vehicle: Cagamas MBS Berhad (CMBS)
- a wholly-owned subsidiary of Cagamas Holdings Berhad
- incorporated as a single purpose entity to securitise the Government’s staff housing loans
- an SPV with bankruptcy-remote features
- no petition clause for winding up by parties that CMBS contracted with
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Originator and Servicer: Housing Loans Division of the Ministry of Finance (BPP)
- Track record in origination and servicing for its own account
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Administrator and Transaction Administrator:Cagamas Berhad
- Track record in administering this asset class and active role in the transaction from structuring to
post-issue
- Strong shareholders - BNM, Investment Banks, Commercial Banks and Finance Companies
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First Deal: Issuance of RM1.555 billion RMBS
- Malaysia’s first RMBS transaction backed by a pool of the Government’s staff housing loans
- Securitisation of RM1.93 billion Government’s staff housing loans
- Issuance of RMBS on 20 October 2004
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Second Deal: Issuance of RM2.05 billion Islamic RMBS
- First world’s rated issuance of Islamic securities backed by a pool of the Government’s staff
Islamic home financing
- Securitisation of RM2.84 billion Government’s staff Islamic home financing
- Issuance of Islamic RMBS on 8 August 2005
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First Deal: Issuance of RM1.555 billion RMBS
First Deal: Issuance of RM1.555 billion RMBS
Cagamas
Prepares transaction and servicer reports
and performs administrative duties
Cagamas
MBS
GOM
(4) Purchase
consideration
Investors
Remits mortgage/
pension payments
Collections
Account
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(2) CMBS issues RMBS to onshore and offshore investors
(3) CMBS receives RMBS issuance proceeds
(3) Proceeds from
RMBS
Excess proceeds
from RMBS issue
GOM – Government of Malaysia
Transaction Background
(1) GOM as originator sells a pool of Government staff
housing loans (GSHL) to Cagamas MBS Berhad
(CMBS)
(2) Issues RMBS
(1) Sale of GSHL
Transaction Objectives
 Promote ABS as a new tool for raising funds from the
capital market
 Create pricing benchmark for Malaysia’s ABS market
 Since 2004, 3 issues of RMBS todate with total issue
size of RM6 billion
(4) CMBS pays purchase consideration for the GSHL
to GOM
Transaction Highlights
 Malaysia’s first RMBS
 Superior portfolio (GOM originated)
 Highest credit rating (AAA by domestic rating agencies,
RAM and MARC)
 Short execution time for repeat transactions
 Favourable regulatory treatment for investors
Role of Cagamas
 Active role in transaction- from structuring to post
issuance
 Transaction Administrator and Administrator (TA&A) track record in administering this asset class
 Formation of the SPV - CMBS, wholly owned by
Cagamas Holdings Berhad
First Deal: Summary Terms of the Offering
Issuer
Issue
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 Cagamas MBS Berhad
 RM1.555 billion RMBS issue comprising the following tranches:
Tenure
(Years)
Issue Amount
(RM million)
Maturity
Date
Coupon Rate
(%)
Spread over
MGS
(basis points)
3
580
19-Oct-2007
3.70
18
5
340
20-Oct-2009
4.30
26
7
290
20-Oct-2011
4.95
38
10
345
20-Oct-2014
5.50
45
Rating
 AAA by Malaysian Rating Corporation Berhad (MARC) and RAM
Rating Services Berhad (RAM)
Interest Payment
 Quarterly
Issuance Date
 20 October 2004
First Deal: Summary Terms of the Offering (Cont’d)
Governing Law
 Laws of Malaysia
Portfolio of Assets
 Government Staff Housing Loans (“GSHL”) with principal outstanding as
at 29 February 2004 of RM1.93 billion serviced by pension deductions
(“Portfolio”)
Security
 Debenture on the Portfolio
 Assignment & Charge over Collections Account
 Assignment of all Issuer’s rights, benefits, interest and title, present and
future under the transaction documents including the purchase contract
Partial Early Redemption
Option
 On each bond redemption date, in respect of Series 4 on condition after
such redemption there remain at least RM66 million in the Collections
Account
Clean-up call option
 10% of the original portfolio outstanding
Mandatory Redemption
in full
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 The Issuer shall redeem in full all outstanding Bonds on the interest
payment date upon material adverse event affecting the Portfolio
First Deal: Asset Characteristics
Government Staff Housing Loans
Subsidised product
Typical retail mortgages
Typical retail mortgages
Matured scheme
and operations
Matured
scheme and operations
Key Features
Predefined comprehensive origination standard
Predefined strict mortgage quantum
Non-discretionary servicing
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First Deal: Asset Characteristics (Cont’d)
Eligibility Criteria
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Borrower is a pensioner
Monthly deductions by Bahagian Pencen JPA (the Government’s Pension Division)
Pension Due >= Monthly Instalment
Mortgage is not in default
Mortgage originated > 6 months prior to execution of purchase contract
MRTA = Outstanding principal on loan
Amount financed are fully disbursed and GOM has fulfilled obligations prior to sale
Mortgaged property is not a Malay Reserve Land (selected states), Native Land or
Customary Land
Predefined strict mortgage quantum
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First Deal: Portfolio Summary
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Outstanding principal amount
 RM1.93 billion (OC of 124.1%)
Number of mortgages
 68,396
Average mortgage size
 RM28,302
Weighted average interest rate
 4.00%
Weighted average seasoning
 14.9 years
Weighted average term to maturity
 11.3 years
Weighted average current age
 56.6 years
Weighted average age at maturity
 67.9 years
First Deal: Cash Flow Waterfall
Collections
+ Income
Collections
Account
Taxes
Servicer
Fees
Administration
Fees
RMBS
Interest
RMBS
Principal
Early Return of
Principal
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First Deal: Placement Distribution
 The RMBS issue attracted RM11.1 billion in book size
- foreign interest from Hong Kong and Singapore amounting to
approximately RM2.2 billion
- RM8.9 billion was from domestic institutions
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Investors comprise financial institutions, asset managers, insurance
companies and corporates
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The tremendous response enabled the issue to be priced
competitively at the lower end of the price guidance
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At the cut-off prices, the book size remained substantial at RM10.6
billion giving an over subscription rate of 5.6 times
Second Deal: RM2.05 billion Sukuk Musyarakah RMBS: Structure
Cagamas
Prepares transaction and servicer
reports and performs administrative
duties
(1) Sale of
GSIHFs
(2) Issues Sukuk
Musyarakah RMBS
Cagamas
MBS
GOM
(4) Purchase
consideration
Investors
(3) Proceeds from
Sukuk Musyarakah RMBS
Transaction Description
(1) GOM as originator sells a pool of Government staff Islamic home
financing (GSIHF) to Cagamas MBS Berhad (Cagamas MBS)
Excess proceeds from Sukuk
Musyarakah RMBS issue
Remits mortgage/
pension payments
GOM – Government of Malaysia
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Collections
Account
(2) Cagamas MBS issues Sukuk Musyarakah RMBS to onshore and
offshore investors
(3) Cagamas MBS receives Sukuk Musyarakah RMBS issuance
proceeds
(4) Cagamas MBS pays purchase consideration for the GSIHF to
GOM
RM2.05 billion Sukuk Musyarakah RMBS: Summary Terms
Issuer
Issue
 Cagamas MBS Berhad
 RM2.05 billion Sukuk Musyarakah RMBS issue comprising the following :
Tenure
(Years)
Issue Amount
(RM million)
3
250
08-Aug-2008
3.41
27
5
215
06-Aug-2010
3.84
46
7
260
08-Aug-2012
4.24
47
10
515
08-Jul-2015
4.71
51
12
410
08-Aug-2017
5.01
68
15
400
08-Jul-2020
5.27
73
Rating
 AAA by MARC and RAM
Profit payment
 Quarterly
Issuance Date
 8 August 2005
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Maturity
Date
Profit Rate
(%)
Spread over MGS
(basis points)
Cagamas MBS: Issuances and Mortgages Purchased

From 2004 – 2007, Cagamas MBS issued RM4.2 billion of
Sukuk Musyarakah RMBS relating to 63,325 mortgage obligors
ISSUANCE SIZE (RM million)
NUMBER OF MORTGAGE OBLIGORS
63,325
4,160
6,025
(59.2%)
29
(40.8%)
Islamic
Conventional
Islamic
168,849
Conventional
Key Highlights
Key Highlights
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
Superior Portfolio
 originated by Government of Malaysia (“GOM”)
 home financing of GOM employees/pensioners
 monthly instalments deducted at source
 collections channeled directly by GOM to the Collections Account
 stringent Eligibility Criteria
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Robust Structure
 representations and warranties from GOM
 replacement/compensation mechanism
 assumptions derived from historical static pools
 retrospective collections to ensure timely collections
 all collections retained in Collections Account until maturity of RMBS
 prepayment only confined to last Tranche

Highest Credit Rating
 AAA by RAM and MARC
 over-collateralisation level
Key Highlights (Cont’d)
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Strong Transaction Parties
 GOM as Servicer
 Cagamas is the Transaction Administrator and Administrator
 both RAM and MARC to monitor the performance of Portfolio
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Regulatory Treatment
 Secured Asset status
 20% Risk Weight under Risk Weighted Capital Ratio Framework
 Classified as Class 2 Liquefiable Assets status and Yield Slippage of 6%
 Single Customer Limit confined to credit facilities of CMBS only

World’s First Islamic Rated RMBS
 new asset class in ringgit originated by GOM
 first rated mortgage-backed Islamic securities that appeal to both Islamic
and conventional investors
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Key Highlights (Cont’d)
No distribution of
excess cash flows
Portfolio sold at
a discount
SPV is wholly-owned
by Cagamas Holdings
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Quarterly profit
distributions
Superior credit strength of
a GOM-originated pool with
yield pick up
GOM as
Servicer
Substitution
or Compensation
Non discretionary
payments
Monthly collections
deducted at source
Issues and Challenges
Issues and Challenges

Market Environment
 Excess liquidity in the banking system
 Healthy banking industry capital position
 Lower loan/financing growth in the banking sector

Historical Data
 Lack of historical data
- Transaction is dependent on the performance of the portfolio. However, there were
issues regarding lack of historical data for valuation of the securitised pool
- Obtaining historical data was challenging

System Requirements
 Information on loans/financings sold to Cagamas
- Need for originator to develop sub-system to tag loans/financings sold to Cagamas
- Need to generate the appropriate reports from originator’s system
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Issues and Challenges

Accounting
 True sale treatment
- A true sale or not a true sale
If yes, can be derecognised i.e. passing over of risk, reward and control to issuer

Taxation
 Tax implications
- Service tax on payment received by the servicer of assets securitised
- Stamp duty on transaction documents relating to securitisation

Regulatory
 Securities Commission
- Certain exemptions and waivers from Guidelines on ABS
 BNM
- Regulatory treatment for the purpose of facilitating investments
36
Impact of Subprime Crisis on Securitisation
3-Year Cagamas Bonds vs Cagamas RMBS

Yield of Cagamas RMBS is higher than Cagamas bonds since
the subprime crisis and this has dampened the Malaysian
securitisation market
0.80%
YIELD DIFFERENTIAL
0.60%
0.40%
0.20%
0.00%
-0.20%
-0.40%
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Key Success Factors
Key Success Factors

Regulatory support from BNM, Securities Commission and other relevant
Government agencies

Strong counterparties

Cagamas branding
- use of CMBS successfully contributed towards achieving favorable pricing

Superior quality of the underlying assets
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Appendix
Rules and Regulations for Securitisation in Malaysia

Guidelines on the Offering of Asset-Backed Securities issued by SC
(ABS Guidelines)
 for the issuance of ABS, the Issuer must seek the approval of the SC by complying
with the ABS Guidelines as well as the Guidelines on Private Debt Securities (PDS
Guidelines) or the Guidelines on Sukuk (Sukuk Guidelines), where applicable

Guidelines on Sukuk issued by SC (Sukuk Guidelines)
 sets out the requirements which the Issuer must comply:
- the requirement for the appointment of Shariah advisors
- requirements for specific submission of documents and information to SC

Trust Deeds Guidelines issued by SC (TD Guidelines)
 all issuances will require the Issuer to execute a trust deed unless the issuances
are exempted under Schedule 8 of the Capital Markets and Services Act 2007

Prudential Standards on Securitisation Transactions issued by BNM
(Prudential Standards)
 outlined the role and responsibilities of the board of directors and the senior
management of banking institutions involved in securitisation activities
 specify best practices with respect to the general risk management framework in
relation to securitisation activities
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Other Market Based Instruments
Mortgage Guarantee Program
What is MGP?
• MGP offers ‘first loss’ protection on a mortgage portfolio
while the mortgage assets remain on the Originator’s
books.
• By reducing the credit risk on their mortgage
loan/financing portfolio, Originators can improve their
Capital Adequacy Ratio.
44
Regulatory Treatment on Guarantee Transaction
Risk Weighting as per BNM Guideline for Capital Adequacy Ratio
Calculation
• Capital charge for mortgage loan/financing
>90% LTV
45
100%
80% LTV – 90% LTV
50%
< 80% LTV
35%
Regulatory Treatment on Guarantee Transaction
Example of Impact to Originators at 79.90% Guarantee Threshold
Pre Guarantee
> 90% LTV
80% - 90% LTV
46
Post Guarantee
10.10% - 15.10%
LTV Guaranteed
20% capital charge
79.90% LTV
35% capital charge
Up to 10.10% LTV
Guaranteed
20% capital charge
79.90% LTV
35% capital charge
100% capital charge
50% capital charge
Benefits of MGP
Capital relief
Improves Return on
Risk Weighted Capital
Portfolio management on
concentration risk
MGP
Improves
Earning
Stability
Transfer
credit risk
Assets remain
on balance sheet
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Limit Credit
Exposure to
Acceptable Level
Role and Impact of Cagamas
Role and Impact of Cagamas

Promote home ownership/home accessibility and affordability in Malaysia
 Link the mortgage market to the capital market
 Provide access to competitively-priced and longer term funds of up to 20 years
 Promote the origination of longer tenure house financing, making them more affordable

Develop the Islamic financial sector
 Significant player in the sukuk market
-
Approx. 16% of Outstanding AAA Sukuk market
Approx. 87% of Outstanding AAA Islamic ABS market
 Enhance the quality of Islamic capital market via structuring of high investment grade sukuk
 Support the promotion of Malaysia as an International Islamic Financial Centre (MIFC)

Develop the Malaysian Capital Market
 Significant player in the debt securities market
-
2nd largest issuer of debt securities after the Government of Malaysia
Approx. 23% of Outstanding AAA PDS market
Approx. 74% of Outstanding AAA ABS market
 Provide an alternative form of investment in high quality PDS for investors to invest their
surplus funds

Enhance and support in the stabilisation of the financial sector
 Provide credit and portfolio risk management, and capital management solutions
 Conduit to remove systemic risk in the financial sector
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Disclaimer
This presentation was prepared exclusively for the benefit and internal use of the
recipient. This presentation does not carry any right of publication or disclosure to
any other party. Neither this presentation nor its content may be used for any other
purpose without prior written consent of Cagamas Berhad (“Cagamas”).
The information in this presentation reflects prevailing conditions and our views as
of this date, all of which are accordingly subject to change. In preparing this
presentation, we have relied upon and assumed, without independent verification,
the accuracy and completeness of any information available from public sources.
Except as required by law, Cagamas and their officers, employees, agents and
advisers do not accept any responsibility for or liability whatsoever in respect of
any loss, liability, claim, damage, cost or expense arising as a consequence
(whether directly or indirectly) of reliance upon any information or any statement or
opinion contained in this document, nor do they make any representation or
warranty (whether expressed or implied) as to the accuracy or completeness of this
documents or its contents. This presentation is not an offer documents and cannot
give rise to any contract.
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Contact us
Cagamas Berhad
Level 32, The Gardens North Tower
Mid Valley City, Lingkaran Syed Putra
59200 Kuala Lumpur
Malaysia
Tel: +603-2262 1800
Fax: +603-2282 8125 / +603-2282 9125
www.cagamas.com.my
Image: Simon Howden / FreeDigitalPhotos.net
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