RCE and Open Market Operations

RCE announced on 6 September that it has gone into open market operations to raise capital for its future business growth. This initiative is expected to contribute positively to the earnings of RCE Group in future years.

Loan receivables originated by RCE Enterprise Sdn Bhd, (RCEM),a sub-subsidiary of RCE will be packaged into a RM1.5 billion asset-backed security (ABS) instrument to be bought over by a trust owned special purpose vehicle, Tresor Assets Berhad.

Involving issuance in various tranches of senior and subordinated ABS in aggregates of up to RM1.5 billion, this programme is available for issue within a period of 5.5 years. The senior ABS are currently rated AAA.

All ABS would be backed by loan receivables meeting certain eligibility criteria which will be sold to Tresor by RCEM in batches with expected aggregate principal amount of RM100 million. The sale will be effected under a two-tiered sale structure where RCEM will first purchase these loan receivables from various co-operatives and then sell to Tresor. The loan receivables are primarily granted to public sector employees with repayments being met by salary deduction at source.

RHB Investment Bank Berhad has granted RCEM a Revolving Credit Facility to acquire the Loan Receivables to reach an economically meaningful amount before they are sold to Tresor.

The proceeds raised from the Programme shall be utilised by the Originator/RCEM for repayments under the RCF and also for its working capital purposes.

The gearing of RCE Group will increase from 3.0 times to 4.2 times assuming two tranches of ABS were to be issued as at 31 March 2007.

It makes business sense to enter the market to procure AAA type loan receivables and to generate funds for RCE’s operation requirements and expansion.

Good for RCE in the long run.

Heartsong