Scc

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s 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.

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 security’s 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

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 Corporation’s (“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 Corporation’s 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 SCC’s existing and future loans from the State Government (both principal and interest) to the Corporation’s debt securities. SCC has also received approval from the State Government to convert the latter’s 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 Corporation’s 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.

Analysts: Shireen Ng (603) 7628 1021 [email protected] Sophia Lee (603) 7628 1189 [email protected] Principal Activity: Development financial institution Instruments: (i) Proposed Islamic

Commercial Papers/Islamic Medium-Term 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 2

Over the years, SCC’s 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, SCC’s financing growth is expected to come in at about 16%. SCC’s 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 Corporation’s 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, SCC’s gross NPL ratio improved from 9.0% to 8.5% over the same period. As at end-June 2011, the gross NPL ratio for SCC’s 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 SCC’s 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 financing portfolio1. In line with the increase in NPLs due to administrative delays, the Corporation’s 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 direct-salary-deduction mechanism for its personal financing portfolio, the Corporation still faces some degree of default risk in the event of a borrower’s 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 SCC’s gross income. Moving forward, we expect contributions from the Corporation’s 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.

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

Sabah Credit Corporation 3

Malaysia Sdn Bhd (IBFIM) as Shariah advisor to ensure the Shariah compliance

of SCC’s Islamic banking business. Meanwhile, we note that profit recognition for SCC’s Islamic financing product differs from that for conventional ones given that the Corporation uses the sum-of-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, SCC’s 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 SCC’s 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 SCC’s 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 Malaysia’s minimum risk-weighted capital-adequacy ratio (“RWCAR”) of 8%. RAM Ratings estimates that the Corporation’s RWCAR came up to 18.1% as at end-June 2011. While SCC’s 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 4

Objectives of the Proposed Securities

The proceeds from the Proposed Securities have been earmarked for SCC’s 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

(Investment in Shariah compliantTrust Assets)

Musyarakah Venture

Investors(Sukukholders)

Issues Sukuk

Musyarakah Capital

Periodic payment / One-off Payment

Declares trust over the Trust Assets

Purchase Undertaking

Musyarakah agreement

(Issuer/ Manager/ Obligor)

Trustee

Appointment as Manager

1

2

3

4

5

6

7

Sabah Credit Corporation

Source: SCC The Proposed Securities will rank pari passu with the Corporation’s 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 Shariah-compliant financial services of SCC (“Musyarakah Venture”). The Corporation, as the issuer, will issue sukuk to the sukuk holders in consideration of their capital contributions (“Musyarakah Capital”), and declare a trust over the Trust Assets2. 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 issuer’s Shariah-compliant financial-services business (including the Profit Reserve Account).

Sabah Credit Corporation 5

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 6

Corporate Information – Sabah Credit Corporation

Date of Incorporation:

15 June 1955

Major Shareholders : Sabah Government

100%

Directors:

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:

Auditor General

Key Management:

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

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

Capital History:

Year Remarks Amount (RM ’000)

Cumulative Total (RM ’000)

2001

Issued new ordinary shares at RM1.00 each

20,000

20,000

2002 Issuance of share dividends 25,000 45,000 2008 Issuance of share dividends 5,000 50,000

Sabah Credit Corporation 7

unauditedBALANCE SHEET (RM million) 31-Dec-07 31-Dec-08 31-Dec-09 31-Dec-10 30-Jun-11ASSETSCash & Money At Call 2.17 12.54 27.55 36.85 20.02Deposits & Placements With Financial Institutions 82.41 46.34 2.05 18.80 13.84Securities Purchased Under Resale Agreements 0.00 0.00 0.00 0.00 0.00Securities Securities Held For Trading 2.90 2.80 3.16 3.31 3.35 Securities Available-For-Sale 0.00 0.00 0.00 0.00 0.00 Securities Held-To-Maturity 0.00 0.00 0.00 0.00 0.00Gross Loans/Financing & Advances 1,036.67 1,240.74 1,227.12 1,265.90 1,387.59 Interest/Finance-Income-In-Suspense 17.90 16.99 16.86 22.88 23.32 General Loan/Financing Loss Reserves 9.88 14.32 17.63 18.14 19.90 Specific Loan/Financing Loss Reserves 30.89 30.49 35.46 35.18 39.02Net Loans/Financing & Advances 977.99 1,178.94 1,157.17 1,189.70 1,305.35Statutory Deposits With BNM 0.00 0.00 0.00 0.00 0.00Investments in Subsidiaries/Associates 0.00 0.13 0.13 0.13 0.13Other Assets 5.31 7.71 9.23 13.12 13.74Property, Plant & Equipment 30.32 32.75 40.97 43.26 43.33TOTAL ASSETS 1,101.11 1,281.20 1,240.24 1,305.17 1,399.76LIABILITIESCustomer Deposits Demand 0.00 0.00 0.00 0.00 0.00 Savings 0.00 0.00 0.00 0.00 0.00 Fixed 0.00 0.00 0.00 0.00 0.00 Negotiable Instruments of Deposits 0.00 0.00 0.00 0.00 0.00Interbank Deposits 0.00 0.00 0.00 0.00 0.00Loans from the Sabah State Government 343.76 343.76 343.76 343.76 343.76Securities Sold Under Repurchase Agreements 0.00 0.00 0.00 0.00 0.00Other Borrowing/Funding 439.86 614.31 562.84 606.16 703.32Subordinated Debt/Financing & Hybrid Capital 0.00 0.00 0.00 0.00 0.00Recourse Obligation on Loans/Financing Sold to CAGAMAS 155.29 138.87 122.70 110.30 104.56Other Liabilities 38.48 42.70 48.01 60.57 36.83TOTAL LIABILITIES 977.39 1,139.64 1,077.31 1,120.79 1,188.47Paid-up Capital 45.00 50.00 50.00 50.00 50.00Minority Interest 0.00 0.00 0.00 0.00 0.00Share Premium & Other Reserves 0.03 0.11 0.20 0.27 0.27Statutory General Reserve 0.00 0.00 0.00 0.00 0.00Retained Profits/(Accumulated Losses) 78.68 91.44 112.73 134.12 161.02TOTAL SHAREHOLDERS' FUNDS 123.72 141.55 162.93 184.38 211.29TOTAL LIABILITIES & SHAREHOLDERS' FUNDS 1,101.11 1,281.20 1,240.24 1,305.17 1,399.76

COMMITMENTS & CONTINGENCIES 7.88 18.42 13.14 12.26 NATIER 1 CAPITAL 113.13 129.19 153.18 184.38 211.29CAPITAL BASE 123.01 143.39 170.81 202.52 231.19

Note :NA = Not available / Not applicable

FINANCIAL SUMMARY Sabah Credit Corporation – Company

Sabah Credit Corporation 8

unauditedINCOME STATEMENT (RM million) 31-Dec-07 31-Dec-08 31-Dec-09 31-Dec-10 30-Jun-11

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

FINANCIAL SUMMARY Sabah Credit Corporation – Company

Sabah Credit Corporation 9

unauditedKEY FINANCIAL RATIOS (%) 31-Dec-07 31-Dec-08 31-Dec-09 31-Dec-10 30-Jun-11PROFITABILITYNet Interest Margin 5.16% 5.16% 5.44% 4.95% 4.52% *Net Financing Margin 5.16% 5.16% 5.44% 4.95% 5.64% *Non-Interest Income Margin 0.19% 0.33% 0.39% 0.54% 2.13% *Cost To Income 34.24% 31.27% 31.72% 35.58% 27.80%Cost Over Total Average Assets 1.83% 1.72% 1.85% 1.95% 2.16% *Return On Assets 2.77% 3.18% 3.28% 3.32% 4.77% *Return On Equity 22.19% 28.55% 27.20% 24.35% 32.61% *Dividend Payout 57.97% 49.05% 31.32% 31.25% 0.00%ASSET QUALITYGross NPLs/NPFs Ratio 8.86% 7.24% 8.55% 9.02% 8.53%Net NPLs/NPFs Ratio 6.01% 4.87% 5.79% 6.37% 5.84%3-months Past Due Ratio 8.86% 7.24% 8.55% 9.02% 8.53%Net NPLs/NPFs To Total Assets 5.39% 4.54% 5.48% 5.90% 5.53%Specific Loan/Financing Loss Provisions For Current Period 0.57% 0.63% 0.72% 0.22% 0.87% *Gross NPLs/NPFs Coverage 45.18% 50.57% 51.33% 47.54% 50.64%Loan/Financing Loss Reserve Coverage 4.00% 3.66% 4.39% 4.29% 4.32%General Loan/Financing Loss Reserve Coverage 1.00% 1.20% 1.50% 1.50% 1.50%LIQUIDITY & FUNDINGLiquid Asset Ratio 20.40% 10.69% 6.05% 16.01% 10.82%Interbank Deposits To Total Interest/Profit Bearing Funds NA NA NA NA NACustomer Deposits To Total Interest/Profit Bearing Funds NA NA NA NA NALoans/Financing To Deposits Ratio NA NA NA NA NALoans/Financing To Stable Funds Ratio 93.84% 96.64% 99.01% 97.57% 97.46%CAPITAL ADEQUACYShareholders' Funds To Total Assets 11.24% 11.05% 13.14% 14.13% 15.09%Tier 1 Risk Weighted Capital Adequacy Ratio 12.69% 11.68% 13.86% 15.93% 16.50%Overall Risk Weighted Capital Adequacy Ratio 13.80% 12.96% 15.45% 17.49% 18.06%Internal Rate Of Capital Generation 8.03% 9.68% 14.04% 12.35% 27.20% *

Note :NA = Not available / Not applicable

FINANCIAL RATIOS Sabah Credit Corporation – Company

Sabah Credit Corporation 10

KEY FINANCIAL RATIOS FORMULAEPROFITABILITYNet Interest Margin Net Interest Income / Average Total AssetsNon-Interest Income Margin Non-Interest Income / Average Total AssetsCost To Income (Personnel & Other Operating Expenses) / Gross IncomeCost Over Total Average Assets (Personnel & Other Operating Expenses) / Average Total AssetsReturn On Assets Pre-Tax Profit/(Loss) / Average Total AssetsReturn On Equity Pre-Tax Profit/(Loss) / Average Shareholders' FundsDividend Payout Dividends / Net Profit/(Loss)ASSET QUALITYGross NPLs/NPFs Ratio (Total Non-Performing Loans/Financing - Interest/Finance-Income-In-Suspense) /

(Gross Loans/Financing - Interest/Finance-Income-In-Suspense)Net NPLs/NPFs Ratio (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 Ratio 3-months Past Due Loans/Financing /(Gross Loans/Financing - Interest/Finance-Income-In-Suspense)Specific Loan/Financing Loss Provisions Specific Loan/Financing Loss Provisions For The Period / Average Gross Loans/Financing

For Current PeriodGross NPLs/NPFs Coverage General & Specific Loan/Financing Loss Reserves (B/S) /

(Total Non-Performing Loans/Financing - Interest/Finance-Income-In-Suspense)Loan/Financing Loss Reserve Coverage General & Specific Loan/Financing Loss Reserves (B/S) /

(Gross Loans/Financing - Interest/Finance-Income-In-Suspense)General Loan/Financing Loss Reserve Coverage General Loan/Financing Loss Reserves / (Gross Loans/Financing - Specific Loan/Financing Loss Reserves - Interest/Finance-Income-In-Suspense)Gross Loans/Financing Gross Loans/Financing Include Loans/Financing Sold To CAGAMASLIQUIDITY & FUNDINGLiquid Asset Ratio Liquid Assets / Customer Deposits & Short-Term FundsLoans/Financing To Deposits Ratio Net Loans/Financing / Customer DepositsLoans/Financing To Stable Funds Ratio Net Loans/Financing / (Shareholders' Funds + Total Interest/Profit Bearing Funds + General Loan/Financing Loss Reserves - Interbank Funding - Property, Plant & Equipment - Investments in Subsidiaries/Associates)Short-Term Funds Interbank Deposits + Bills & Acceptances + Securities Sold Under ReposLiquid Assets Cash & Short-Term Funds + Securities Purchased Under Repos + Deposits & Placements With

Financial Institutions + Quoted Securities (Excluding Securities Held-To-Maturity)Total Interest/Profit Bearing Funds Customer Deposits + Interbank + Bills & Acceptances + Securities Sold Under Repos + Borrowing

+ Supplementary CapitalCAPITAL ADEQUACYInternal Rate Of Capital Generation (Net Profit/(Loss) + Extraordinary Income - Dividend + General Loan/Financing Loss Provision) /

Average Shareholders' Funds

FINANCIAL RATIOS Sabah Credit Corporation – Company

Sabah Credit Corporation 11

CREDIT RATING DEFINITIONS

Issue Ratings

Long-Term Ratings

AAA

AA

A

BBB

BB

B

C

D

Short-Term Ratings

P1

P2

P3

NP

D

An issue rated AAA has superior safety for payment of financial obligations . This is the highest long-term Issue Ratingassigned by RAM Ratings .

An issue rated AA has high safety for payment of financial obligations . The issuer is resilient against adverse changes incircumstances, economic conditions and/or operating environments .

An issue rated A has adequate safety for payment of financial obligations . The issuer is more susceptible to adversechanges in circumstances, economic conditions and/or operating environments than those in higher -rated categories .

An issue rated BBB has moderate safety for payment of financial obligations . The issuer is more likely to be weakened byadverse changes in circumstances, economic conditions and/or operating environments than those in higher-ratedcategories . This is the lowest investment -grade category.

An issue rated BB has low safety for payment of financial obligations . The issuer is highly vulnerable to adverse changesin circumstances , economic conditions and/or operating environments .

An issue rated B has very low safety for payment of financial obligations . The issuer has a limited ability to withstandadverse changesin circumstances ,economic conditions and/or operating environments .

An issue rated C has a high likelihood of default . 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 defaulting on a particulardebt issue .

An issue rated D is either currently in default or faces imminent default on its financial obligations, whether or not formallydeclared . The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining tothe issuer that could jeopardise the payment of a particular debt issue .

An issue rated P1 has high safety for payment of financial obligations in the short term . This is the highest short -termIssue Rating assigned by RAM Ratings .

An issue rated P2 has adequate safety for payment of financial obligations in the short term . The issuer is moresusceptible to the effects of deteriorating circumstances than those in the highest -rated category .

An issue rated P3 has moderate safety for payment of financial obligations in the short term . The issuer is more likely tobe weakened by the effects of deteriorating circumstances than those in higher -rated categories . This is the lowestinvestment -grade category.

An issue rated NP has doubtful safety for payment of financial obligations in the short term . The issuer faces majoruncertainties that could compromise its capacity for payment of a particular debt issue .

An issue rated D is either currently in default or faces imminent default on its financial obligations, whether or not formallydeclared . The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining tothe issuer that could jeopardise the payment of a particular debt issue .

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 theissue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking ; and the subscript 3 indicates that theissue ranks at the lower end of its generic rating category . In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings which havebeen enhanced by a bank guarantee or other supports, respectively .

An Issue Rating is RAM Ratings' current opinion on the creditworthiness of a particular debt issue. It reflects the overallcapacity 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 .

Sabah Credit Corporation 12

CREDIT RATING DEFINITIONS

Issue Ratings - Partnership-Based Sukuk

Long-Term Ratings

AAA

AA

A

BBB

BB

B

C

D

Short-Term Ratings

P1

P2

P3

NP

D

A sukuk rated AAA has superior safety for payment of capital and expected returns. This is the highest long-term IssueRating 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 adversechanges 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 toadverse changes in circumstances, economic conditions and/or operating environments than those in higher-ratedcategories.

A sukuk rated BBB has moderate safety for payment of capital and expected returns. The issuer is more likely to beweakened by adverse changes in circumstances, economic conditions and/or operating environments than those inhigher-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 adversechanges 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 towithstand adverse changes in circumstances, economic conditions and/oroperating environments.

A sukuk rated C has a high likelihood of not meeting the payment of capital and expected returns. The issuer is highlydependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack ofwhich 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 ratingmay also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that couldjeopardise the fulfilment of the investment contract's terms.

A sukuk rated P1 has high safety for payment of capital and expected returns in the short term. This is the highest short-term 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 moresusceptible 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 morelikely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is thelowest investment-grade category.

A sukuk rated NP has doubtful safety for payment of capital and expected returns in the short term. The issuer facesmajor 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 ratingmay also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that couldjeopardise 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 theissue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that theissue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings which havebeen enhanced by a bank guarantee or other supports, respectively.

An Issue Rating for a partnership-based sukuk is RAM Ratings' current opinion on the creditworthiness of a particularpartnership-based sukuk. It reflects the overall capacity and willingness of an issuer to meet the payment of capital andexpected returns on a full and timely basis, taking into account the expressed terms and conditions of the investmentcontract. 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.

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RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

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.

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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