October 2011

SABAH CREDIT CORPORATION

Proposed Islamic Commercial Papers/Islamic Medium-Term Notes Programme of up to RM1 billion RM500 million Commercial Papers/Medium-Term Notes Programme (2007/2014)

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the securitys market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

CREDIT RATING RATIONALE

FINANCIAL INSTITUTION RATINGS
OCTOBER 2011

Analysts: Shireen Ng (603) 7628 1021 shireen@ram.com.my Sophia Lee (603) 7628 1189 sophia@ram.com.my Principal Activity: Development financial institution Instruments: (i) Proposed Islamic Commercial Papers/Islamic MediumTerm Notes Programme of up to RM1 billion (ii) RM500 million Commercial Papers/Medium-Term Notes Programme (2007/2014) Islamic Contract: Musyarakah Ratings: (i) AA1/P1 [Assigned] (ii) AA1/P1 [Reaffirmed] Rating Outlook: (i) (ii) Stable Last Rating Action: 12 July 2011 Profit Margin/Coupon Rate: (i) Determined at issuance (ii) Determined at issuance

SABAH CREDIT CORPORATION Initial Rating and Rating Update

RAM Ratings has assigned respective long- and short-term ratings of AA1 and P1 to Sabah Credit Corporations (SCC or the Corporation) Proposed Islamic Medium-Term Notes (IMTN) Programme of up to RM1 billion and Proposed Islamic Commercial Papers (ICP) Programme of up to RM1 billion (collectively, the Proposed Securities); the aggregate outstanding nominal value of the ICP and/or IMTN cannot exceed RM1 billion at any time. Concurrently, the respective long- and short-term ratings of the Corporations RM500 million CP/MTN Programme (2007/2014) have been reaffirmed at AA1 and P1. Both long-term ratings have a stable outlook. The ratings reflect the strong commitment and support expected from the State Government of Sabah (State Government, whose debt facility is rated AAA/Stable/P1 by RAM Ratings). Wholly owned by the State Government and operating under the purview of the Sabah State Ministry of Finance (State MOF), SCC provides financing to employees of both the State and Federal Governments, with repayment effected through direct salary deductions. Given its close relationship with the State Government, the Corporation has been allowed the privilege of making direct salary deductions for state employees repayments on personal loans via the State Treasury. Direct salary deductions for employees of the Federal Government are conducted via Biro Angkasa. Meanwhile, support from the State Government is further underlined by its board representation as well as the subordination of SCCs existing and future loans from the State Government (both principal and interest) to the Corporations debt securities. SCC has also received approval from the State Government to convert the latters loan of up to RM100 million into share capital at the option of the Corporation. In addition, the State Government has extended a Letter of Support (LOS) for the Proposed Securities. We note that this LOS is not as strongly worded as the one for the Corporations existing RM500 million CP/MTN Programme (2007/2014). Nevertheless, we believe that the State Government will readily lend its support if needed, given the strategic link between both entities.

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the securitys market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

Tenures/Maturity Date: (i) 7 years from the date of first issue under the ICP programme and 20 years for the IMTN programme (ii) 7 September 2014 Lead Arrangers: (i) AmInvestment Bank Berhad (ii) ECM Libra Investment Bank Berhad, AmInvestment Bank Berhad & Maybank Investment Bank Berhad Trustees: (i) Am Trustee Berhad (ii) HSBC (Malaysia) Trustee Berhad Shariah Advisor: Dr Mohd Daud Bakar

Over the years, SCCs personal financing portfolio has been dominating its lending assets, which exposes it to concentration risk; as at end-June 2011, this portfolio accounted for about 80% of its lending assets (end-December 2010: 78%). Meanwhile, the Corporation recorded a healthy 8% financing growth in the first half of FYE 31 December 2011 (1H FY Dec 2011) despite intense competition in the personal-financing segment. For fiscal 2011, SCCs financing growth is expected to come in at about 16%. SCCs gross non-performing-loan (NPL) ratio has historically been quite high due to some legacy loans. While the ratio had eased between FY Dec 2006 and FY Dec 2008, it has since picked up again. As at end-June 2011, the Corporations absolute gross NPLs stood at RM116.4 million, some 4% higher than the RM112.2 million as at end-December 2010. Given its enlarged loan base, however, SCCs gross NPL ratio improved from 9.0% to 8.5% over the same period. As at end-June 2011, the gross NPL ratio for SCCs personal financing portfolio remained relatively high at 4.4% (end-December 2010: 4.6%), mainly due to administrative problems pertaining to delays in the first deductions of monthly repayments from civil servants, especially state employees. RAM Ratings understands that NPLs due to administrative delays accounted for about a third of SCCs non-performing personal financing facilities. We also note that SCC only writes off NPLs after exhausting all recovery and legal efforts; this means that NPLs remain in its books for a long time, including those under its personal 1 financing portfolio . In line with the increase in NPLs due to administrative delays, the Corporations annualised ratio on credit cost over average gross financing weakened to 0.9% as at end-1H FY Dec 2011 (end-FY Dec 2010: 0.2%). The lower credit cost in the previous year had been due to a RM6.0 million upward adjustment to the interest in suspense for its automobile loans. We also note that while there is a directsalary-deduction mechanism for its personal financing portfolio, the Corporation still faces some degree of default risk in the event of a borrowers job transfer, resignation, bankruptcy, disability or death. In 1H FY Dec 2011, SCC posted a stable pre-tax profit of RM32.3 million on the back of healthy financing growth, which translated into an improved annualised return on assets of 4.8% and return on equity of 32.6% (end-FY Dec 2010: 3.3% and 24.5%). Its Islamic banking operations contributed a maiden profit of RM18.2 million in 1H FY Dec 2011, accounting for about 35% of SCCs gross income. Moving forward, we expect contributions from the Corporations Islamic banking business to increase given that it has phased out its conventional personal financing product. SCC has engaged Islamic Banking and Finance Institute
1

Commercial banks typically write off their personal financing and credit card loans after 6 months in arrears.

Sabah Credit Corporation

Malaysia Sdn Bhd (IBFIM) as Shariah advisor to ensure the Shariah compliance of SCCs Islamic banking business. Meanwhile, we note that profit recognition for SCCs Islamic financing product differs from that for conventional ones given that the Corporation uses the sumof-digits (SOD) method to recognise profit income. While recognition of total income is similar throughout the tenure of the Islamic product, more financing income is recognised during the initial phase of the tenure under the SOD method. This had broadened its net financing margin (NFM) to 5.6% (annualised) in 1H FY Dec 2011 (FY Dec 2010: 5.0%). On this note, SCCs NFM will start tapering off if its financing growth is not sustained. Unable to accept deposits like commercial banks, SCC largely relies on bank borrowings and the debt capital market to fund its lending operations. The Corporation also has RM343.8 million of loans from the State Government, which constituted some 30% of its total borrowings; these are long-term loans and have been in SCCs books since the 1970s. RAM Ratings notes that these loans have favourable repayment terms, such as flexible interest rates and maturity dates, and are also subordinated to SCCs existing CP/MTN Programme and the Proposed Securities. The current CP/MTN Programme and the Proposed Securities are not underwritten, and will therefore expose SCC to roll-over and liquidity risks. Nonetheless, the Corporation has banking lines to partly mitigate these risks. We highlight that SCC is not required to comply with Bank Negara Malaysias minimum risk-weighted capital-adequacy ratio (RWCAR) of 8%. RAM Ratings estimates that the Corporations RWCAR came up to 18.1% as at end-June 2011. While SCCs capitalisation level is still lower than those of its rated Development Financial Institution peers, it is still considered healthy relative to its overall asset quality and earnings performance. For further details on the ratings of SCC, please refer to the rationale published by RAM Ratings on 12 July 2011.

Sabah Credit Corporation

 Objectives of the Proposed Securities

The proceeds from the Proposed Securities have been earmarked for SCCs working capital, Shariah-compliant business activities and the growth of its Islamic financial-services business.

Transaction Structure

Figure 1: Transaction structure of the Proposed Securities

Declares trust over 4 the Trust Assets

Sabah Credit Corporation (Issuer/ Manager/ Obligor)

7
5

Appointm ent as Manager

Purchase Undertaking
Musyarakah Venture (Investment in Shariah compliant Trust Assets)

Issues Sukuk Trustee

Investors (Sukukholders) Musyarakah agreement

1

Periodic paym ent / One-off Paym ent

Musyarakah Capital

Source: SCC

The Proposed Securities will rank pari passu with the Corporations other senior debts, and will have priority over loans and advances made or to be made by the State Government, its subordinated debts and hybrid capital, if any. The Proposed Securities will be issued based on the Shariah principle of Musyarakah. For each tranche, the holders of the Proposed Securities (sukuk holders) will form a partnership among themselves, to invest in the Shariahcompliant financial services of SCC (Musyarakah Venture). The Corporation, as the issuer, will issue sukuk to the sukuk holders in consideration of their capital 2 contributions (Musyarakah Capital), and declare a trust over the Trust Assets . The Trustee (acting on behalf of the sukuk holders) will also appoint SCC as its agent (the Manager), to manage the Musyarakah venture. The sukuk holders will share the profits or losses from the Musyarakah Venture, in proportion to their respective contributions to the Musyarakah Capital. The income generated by the Trust Assets will be distributed monthly, quarterly or semi-annually at the
2

The issuers Shariah-compliant financial-services business (including the Profit Reserve Account).

Sabah Credit Corporation

option of the issuer; the sukuk holders will agree upfront that they will receive returns, if any, up to the expected level. The Manager will deposit any amount in excess of the expected returns into a Profit Reserve Account (PRA), to fund future periodic distributions. If, on any payment date, the income generated by the Trust Assets and the funds in the PRA are insufficient to meet the expected returns, SCC will have to make an advance payment during the tenure of the Proposed Securities - equal to such deficiency. SCC will undertake to purchase the sukuk holders interests in the Trust Assets at the exercise price (i.e. 100% of the outstanding principal amount and the expected returns on the date) upon the maturity of each tranche, or upon the declaration of a dissolution event. We note that Dr Mohd Daud Bakar, as the independent Shariah Adviser for the Proposed Securities, has reviewed the structure and mechanism of the Proposed Securities. Based on the preliminary Shariah endorsement letter dated 12 May 2011, Dr Mohd Daud Bakar has confirmed that the Proposed Securities is in compliance with Islamic principals as well as the relevant guidelines formulated by the Securities Commission to regulate the issuance of Islamic securities, subject to satisfactory documentation and proper execution of the same.

Sabah Credit Corporation

 Corporate Information Sabah Credit Corporation

Date of Incorporation: Major Shareholders : Directors: 15 June 1955 Sabah Government YB Datin Linda Tsen Thau Lin Datuk Mohamad Jafry Muluk Bin Samad Datuk Osman Jamal Datuk MC Ismail Salam Datuk Peter Athanasius Ir Shahelmy Yahya Marzuki Hj Spawi, JP Zamani Hj Basri Raskan Bin Asing Datuk Vincent Pung Yee Kiong Auditor General Datuk Vincent Pung Yee Kiong Datuk Haji Abdullah Haji Sibil Lee Shu Men Arius Jipiu Fiona Kau Shuk Fang George Taitim Tulas Henry Chu Wing Siew Charles Peter Mojuntin Victor Monsibol Fatimah Kahar Chan Kin Ren Year 2001 2002 2008 Remarks Issued new ordinary shares at RM1.00 each Issuance of share dividends Issuance of share dividends Chief Executive Officer Consultant Chief Operating Officer Head of Department, Credit Control Head of Department, Finance Head of Department, Corporate & Training Head of Department, Administration & Property Head of Department, Internal Audit Head of Department, Credit Head of Department, Human Resource Head of Department, Information Technology Amount (RM 000) 20,000 25,000 5,000 Cumulative Total (RM 000) 20,000 45,000 50,000 100%

Auditor: Key Management:

Capital History:

Sabah Credit Corporation

FINANCIAL SUMMARY
Sabah Credit Corporation Company
unaudited BALANCE SHEET (RM million) ASSETS Cash & Money At Call Deposits & Placements With Financial Institutions Securities Purchased Under Resale Agreements Securities Securities Held For Trading Securities Available-For-Sale Securities Held-To-Maturity Gross Loans/Financing & Advances Interest/Finance-Income-In-Suspense General Loan/Financing Loss Reserves Specific Loan/Financing Loss Reserves Net Loans/Financing & Advances Statutory Deposits With BNM Investments in Subsidiaries/Associates Other Assets Property, Plant & Equipment TOTAL ASSETS LIABILITIES Customer Deposits Demand Savings Fixed Negotiable Instruments of Deposits Interbank Deposits Loans from the Sabah State Government Securities Sold Under Repurchase Agreements Other Borrowing/Funding Subordinated Debt/Financing & Hybrid Capital Recourse Obligation on Loans/Financing Sold to CAGAMAS Other Liabilities TOTAL LIABILITIES Paid-up Capital Minority Interest Share Premium & Other Reserves Statutory General Reserve Retained Profits/(Accumulated Losses) TOTAL SHAREHOLDERS' FUNDS TOTAL LIABILITIES & SHAREHOLDERS' FUNDS COMMITMENTS & CONTINGENCIES TIER 1 CAPITAL CAPITAL BASE Note : NA = Not available / Not applicable 31-Dec-07 2.17 82.41 0.00 2.90 0.00 0.00 1,036.67 17.90 9.88 30.89 977.99 0.00 0.00 5.31 30.32 1,101.11 31-Dec-08 12.54 46.34 0.00 2.80 0.00 0.00 1,240.74 16.99 14.32 30.49 1,178.94 0.00 0.13 7.71 32.75 1,281.20 31-Dec-09 27.55 2.05 0.00 3.16 0.00 0.00 1,227.12 16.86 17.63 35.46 1,157.17 0.00 0.13 9.23 40.97 1,240.24 31-Dec-10 36.85 18.80 0.00 3.31 0.00 0.00 1,265.90 22.88 18.14 35.18 1,189.70 0.00 0.13 13.12 43.26 1,305.17 30-Jun-11 20.02 13.84 0.00 3.35 0.00 0.00 1,387.59 23.32 19.90 39.02 1,305.35 0.00 0.13 13.74 43.33 1,399.76

0.00 0.00 0.00 0.00 0.00 343.76 0.00 439.86 0.00 155.29 38.48 977.39 45.00 0.00 0.03 0.00 78.68 123.72 1,101.11 7.88 113.13 123.01

0.00 0.00 0.00 0.00 0.00 343.76 0.00 614.31 0.00 138.87 42.70 1,139.64 50.00 0.00 0.11 0.00 91.44 141.55 1,281.20 18.42 129.19 143.39

0.00 0.00 0.00 0.00 0.00 343.76 0.00 562.84 0.00 122.70 48.01 1,077.31 50.00 0.00 0.20 0.00 112.73 162.93 1,240.24 13.14 153.18 170.81

0.00 0.00 0.00 0.00 0.00 343.76 0.00 606.16 0.00 110.30 60.57 1,120.79 50.00 0.00 0.27 0.00 134.12 184.38 1,305.17 12.26 184.38 202.52

0.00 0.00 0.00 0.00 0.00 343.76 0.00 703.32 0.00 104.56 36.83 1,188.47 50.00 0.00 0.27 0.00 161.02 211.29 1,399.76 NA 211.29 231.19

Sabah Credit Corporation

FINANCIAL SUMMARY
Sabah Credit Corporation Company
unaudited INCOME STATEMENT (RM million) Interest Income Less: Accretion Of Discount/(Amortisation Of Premium) Less: Net Interest Income Suspended Less: Interest Expense Net Interest Income Income From Islamic Banking Operations Non-Interest Income Gross Income Less: Personnel Expenses Less: Other Operating Expenses Less: Loan/Financing Loss Provisions Less: Non-Recurring Items Share of results of Associated Companies Pre-Tax Profit/(Loss) Less: Taxation Net Profit/(Loss) Less: Minority Interests Less: Transfer To Statutory Reserves Less: Transfer To Other Reserves Less: Dividend Post-Appropriation Profit/(Loss) 31-Dec-07 77.01 0.00 0.00 (27.41) 49.60 0.00 1.87 51.47 (10.49) (7.13) (7.25) 0.00 0.00 26.60 (8.34) 18.26 0.00 0.00 (0.03) (10.59) 7.64 31-Dec-08 102.41 0.00 0.00 (40.96) 61.45 0.00 3.91 65.36 (11.40) (9.03) (7.06) 0.00 0.00 37.86 (12.67) 25.19 0.00 0.00 (0.08) (12.36) 12.75 31-Dec-09 111.48 0.00 0.00 (42.93) 68.55 0.00 4.87 73.43 (12.19) (11.10) (8.72) 0.00 0.00 41.41 (10.28) 31.13 0.00 0.00 (0.08) (9.75) 21.30 31-Dec-10 104.27 0.00 0.00 (41.30) 62.97 0.00 6.85 69.82 (12.88) (11.95) (2.70) 0.00 0.00 42.28 (11.08) 31.20 0.00 0.00 (0.07) (9.75) 21.38 30-Jun-11 6 months 44.04 0.00 0.00 (13.46) 30.58 18.23 3.67 52.49 (7.14) (7.45) (5.64) 0.00 0.00 32.25 (5.35) 26.90 0.00 0.00 0.00 0.00 26.90

Sabah Credit Corporation

FINANCIAL RATIOS
Sabah Credit Corporation Company
unaudited KEY FINANCIAL RATIOS (%) PROFITABILITY Net Interest Margin Net Financing Margin Non-Interest Income Margin Cost To Income Cost Over Total Average Assets Return On Assets Return On Equity Dividend Payout ASSET QUALITY Gross NPLs/NPFs Ratio Net NPLs/NPFs Ratio 3-months Past Due Ratio Net NPLs/NPFs To Total Assets Specific Loan/Financing Loss Provisions For Current Period Gross NPLs/NPFs Coverage Loan/Financing Loss Reserve Coverage General Loan/Financing Loss Reserve Coverage LIQUIDITY & FUNDING Liquid Asset Ratio Interbank Deposits To Total Interest/Profit Bearing Funds Customer Deposits To Total Interest/Profit Bearing Funds Loans/Financing To Deposits Ratio Loans/Financing To Stable Funds Ratio CAPITAL ADEQUACY Shareholders' Funds To Total Assets Tier 1 Risk Weighted Capital Adequacy Ratio Overall Risk Weighted Capital Adequacy Ratio Internal Rate Of Capital Generation Note : NA = Not available / Not applicable 31-Dec-07 5.16% 5.16% 0.19% 34.24% 1.83% 2.77% 22.19% 57.97% 8.86% 6.01% 8.86% 5.39% 0.57% 45.18% 4.00% 1.00% 20.40% NA NA NA 93.84% 11.24% 12.69% 13.80% 8.03% 31-Dec-08 5.16% 5.16% 0.33% 31.27% 1.72% 3.18% 28.55% 49.05% 7.24% 4.87% 7.24% 4.54% 0.63% 50.57% 3.66% 1.20% 10.69% NA NA NA 96.64% 11.05% 11.68% 12.96% 9.68% 31-Dec-09 5.44% 5.44% 0.39% 31.72% 1.85% 3.28% 27.20% 31.32% 8.55% 5.79% 8.55% 5.48% 0.72% 51.33% 4.39% 1.50% 6.05% NA NA NA 99.01% 13.14% 13.86% 15.45% 14.04% 31-Dec-10 4.95% 4.95% 0.54% 35.58% 1.95% 3.32% 24.35% 31.25% 9.02% 6.37% 9.02% 5.90% 0.22% 47.54% 4.29% 1.50% 16.01% NA NA NA 97.57% 14.13% 15.93% 17.49% 12.35% 30-Jun-11 4.52% 5.64% 2.13% 27.80% 2.16% 4.77% 32.61% 0.00% * * * * * *

8.53% 5.84% 8.53% 5.53% 0.87% * 50.64% 4.32% 1.50% 10.82% NA NA NA 97.46% 15.09% 16.50% 18.06% 27.20% *

Sabah Credit Corporation

FINANCIAL RATIOS
Sabah Credit Corporation Company
KEY FINANCIAL RATIOS PROFITABILITY Net Interest Margin Non-Interest Income Margin Cost To Income Cost Over Total Average Assets Return On Assets Return On Equity Dividend Payout ASSET QUALITY Gross NPLs/NPFs Ratio Net NPLs/NPFs Ratio 3-months Past Due Ratio Specific Loan/Financing Loss Provisions For Current Period Gross NPLs/NPFs Coverage Loan/Financing Loss Reserve Coverage General Loan/Financing Loss Reserve Coverage Gross Loans/Financing LIQUIDITY & FUNDING Liquid Asset Ratio Loans/Financing To Deposits Ratio Loans/Financing To Stable Funds Ratio Short-Term Funds Liquid Assets Total Interest/Profit Bearing Funds CAPITAL ADEQUACY Internal Rate Of Capital Generation FORMULAE Net Interest Income / Average Total Assets Non-Interest Income / Average Total Assets (Personnel & Other Operating Expenses) / Gross Income (Personnel & Other Operating Expenses) / Average Total Assets Pre-Tax Profit/(Loss) / Average Total Assets Pre-Tax Profit/(Loss) / Average Shareholders' Funds Dividends / Net Profit/(Loss) (Total Non-Performing Loans/Financing - Interest/Finance-Income-In-Suspense) / (Gross Loans/Financing - Interest/Finance-Income-In-Suspense) (Total Non-Performing Loans/Financing - Specific Loan/Financing Loss Reserves - Interest/Finance-Income-In-Suspense) / (Gross Loans/Financing - Specific Loan/Financing Loss Reserves - Interest/Finance-Income-In-Suspense) 3-months Past Due Loans/Financing /(Gross Loans/Financing - Interest/Finance-Income-In-Suspense) Specific Loan/Financing Loss Provisions For The Period / Average Gross Loans/Financing General & Specific Loan/Financing Loss Reserves (B/S) / (Total Non-Performing Loans/Financing - Interest/Finance-Income-In-Suspense) General & Specific Loan/Financing Loss Reserves (B/S) / (Gross Loans/Financing - Interest/Finance-Income-In-Suspense) General Loan/Financing Loss Reserves / (Gross Loans/Financing - Specific Loan/Financing Loss Reserves - Interest/Finance-Income-In-Suspense) Gross Loans/Financing Include Loans/Financing Sold To CAGAMAS Liquid Assets / Customer Deposits & Short-Term Funds Net Loans/Financing / Customer Deposits Net Loans/Financing / (Shareholders' Funds + Total Interest/Profit Bearing Funds + General Loan/Financing Loss Reserves - Interbank Funding - Property, Plant & Equipment - Investments in Subsidiaries/Associates) Interbank Deposits + Bills & Acceptances + Securities Sold Under Repos Cash & Short-Term Funds + Securities Purchased Under Repos + Deposits & Placements With Financial Institutions + Quoted Securities (Excluding Securities Held-To-Maturity) Customer Deposits + Interbank + Bills & Acceptances + Securities Sold Under Repos + Borrowing + Supplementary Capital (Net Profit/(Loss) + Extraordinary Income - Dividend + General Loan/Financing Loss Provision) / Average Shareholders' Funds

Sabah Credit Corporation

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CREDIT RATING DEFINITIONS

Issue Ratings
An Issue Rating is RAM Ratings' current opinion on the creditworthiness of a particular debt issue . It reflects the overall capacity and willingness of an issuer to meet the financial obligations on a particular debt issue on a full and timely basis, taking into account its expressed terms and conditions .

Long-Te rm Ra tings
AAA An issue rated AAA has superior s afety for payment of financial obligations . This is the highest long-term Issue Rating assigned by RAM Ratings . An issue rated AA has high safety for payment of financial obligations . The is suer is resilient agains t adv erse changes in circumstances, economic conditions and/or operating env ironments . An issue rated A has adequate safety for payment of financial obligations . The iss uer is more s us ceptible to advers e changes in circumstances , economic c onditions and/or operating environments than those in higher -rated c ategories . An issue rated BBB has moderate s afety for pay ment of financ ial obligations . The is suer is more likely to be weak ened by adverse changes in circ umstanc es , economic conditions and/or operating environments than those in higher-rated categories . This is the lowest inves tment -grade c ategory. An issue rated BB has low safety for payment of financial obligations . The iss uer is highly v ulnerable to adv ers e changes in circumstances , ec onomic c onditions and/or operating environments . An issue rated B has very low safety for payment of financial obligations . The iss uer has a limited advers e changes in circumstances , economic conditions and/or operating environments . ability to withstand

AA

BBB

BB

An issue rated C has a high lik elihood of default . The is suer is highly dependent on favourable changes in circ ums tances , economic conditions and/or operating environments, the lack of which would lik ely result in it defaulting on a particular debt issue . An issue rated D is either c urrently in default or faces imminent default on its financial obligations, whether or not formally declared . The D rating may also reflect a distress ed exchange, the filing of bank ruptcy and/or other ac tions pertaining to the issuer that could jeopardis e the pay ment of a particular debt iss ue .

Short-Te rm Ra tings
P1 An issue rated P 1 has high safety for pay ment of financial obligations in the short term . This is the highes t short -term Issue Rating ass igned by RAM Ratings . An iss ue rated P 2 has adequate safety for payment of financial obligations in the short term . The issuer is more susc eptible to the effec ts of deteriorating c ircumstances than those in the highest -rated category . An issue rated P3 has moderate s afety for payment of financial obligations in the short term . The issuer is more lik ely to be weak ened by the effects of deteriorating c ircums tanc es than thos e in higher -rated categories . This is the lowest investment -grade category . An issue rated NP has doubtful s afety for pay ment of financial obligations in the short term . The iss uer faces major uncertainties that could c ompromise its c apacity for payment of a partic ular debt issue . An issue rated D is either c urrently in default or faces imminent default on its financial obligations, whether or not formally declared . The D rating may also reflect a distress ed exchange, the filing of bank ruptcy and/or other ac tions pertaining to the issuer that could jeopardis e the pay ment of a particular debt iss ue .

P2

P3

NP

For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in eac h rating c ategory from AA to C. The subsc ript 1 indicates that the iss ue ranks at the higher end of its generic rating c ategory ; the subscript 2 indicates a mid-rank ing ; and the subscript 3 indicates that the iss ue ranks at the lower end of its generic rating c ategory . In addition, RAM Ratings applies the s uffixes (bg) or (s) to ratings whi h hav e c been enhanc ed by a bank guarantee or other s upports, res pectiv ely .

Sabah Credit Corporation

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CREDIT RATING DEFINITIONS

Issue Ratings - Partnership-Based Sukuk
An Issue Rating for a partnership-based sukuk is RAM Ratings' current opinion on the creditworthiness of a particular partnership-based sukuk. It reflects the overall capacity and willingness of an issuer to meet the payment of capital and expected returns on a full and timely basis, taking into account the expressed terms and conditions of the investment contract. RAM Ratings sukuk ratings are, however, not a measure of compliance with Shariah principles or the role, formation, practices, legitimacy and soundness of the Shariah advisors recommendations and decisions.

Long-Term Ratings
AAA AA A A sukuk rated AAA has superior safety for payment of capital and expected returns. This is the highest long-term Issue Rating assigned by RAM Ratings to a partnership-based sukuk. A sukuk rated AA has high safety for payment of capital and expected returns. The issuer is resilient against adverse changes in circumstances, economic conditions and/or operating environments.

A sukuk rated A has adequate safety for payment of capital and expected returns. The issuer is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories.
A sukuk rated BBB has moderate safety for payment of capital and expected returns. The issuer is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. A sukuk rated BB has low safety for payment of capital and expected returns. The issuer is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments. A sukuk rated B has very low safety for payment of capital and expected returns. The issuer has a limited ability to withstand adverse changes in circumstances, economic conditions and/or operating environments. A sukuk rated C has a high likelihood of not meeting the payment of capital and expected returns. The issuer is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it not fulfilling the terms of the investment contract. A sukuk rated D is either currently not meeting or will not meet the payment of capital and expected returns. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise the fulfilment of the investment contract's terms.

BBB

BB B C

Short-Term Ratings
P1 P2 P3

A sukuk rated P1 has high safety for payment of capital and expected returns in the short term. This is the highest shortterm Issue Rating assigned by RAM Ratings a partnership-based sukuk. A sukuk rated P2 has adequate safety for payment of capital and expected returns in the short term. The issuer is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category.
A sukuk rated P3 has moderate safety for payment of capital and expected returns in the short term. The issuer is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category.

NP D

A sukuk rated NP has doubtful safety for payment of capital and expected returns in the short term. The issuer faces major uncertainties that could compromise its capacity for fulfiling the terms of the investment contract. A sukuk rated D is either currently not meeting or will not meet the payment of capital and expected returns. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise the fulfilment of the investment contract's terms.

For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the issue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the issue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings whic h have been enhanced by a bank guarantee or other supports, respectively.

Sabah Credit Corporation

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Published by RAM Rating Services Berhad Reproduction or transmission in any form is prohibited except by permission from RAM Ratings. Copyright 2011 by RAM Ratings

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RAM Ratings, its rating committee members and the analysts involved in the rating exercise have not encountered and/or are not aware of any conflict of interest relating to the rating exercise. RAM Ratings will adequately disclose all related information in the report if there are such instances.

Sabah Credit Corporation

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