Hire Purchase and Leasing Debts

Originators of hire purchase and leasing (HP & L) debts who are supervised by BNM are eligible to sell their HP & L debts on with recourse basis to Cagamas.

The selling institutions are required to execute a Master Sale and Purchase Agreement (Hire Purchase and Leasing Debts) with Cagamas before selling their HP & L debts to Cagamas. For each transaction, Cagamas purchases a minimum of RM5 million worth of HP & L debts on a fixed rate basis for review periods of 3 to 7 years. All HP & L debts can be sold to Cagamas, including debts purchased by selling institutions on a block discounting basis. Every quarter, the selling institutions will repurchase from Cagamas HP & L debts that are defective and offer to sell to the Company, an equivalent amount of HP & L debts as replacement for the repurchased debts.

At the end of the contract review period (that is on the Review Date), the selling institutions are given the option to either continue the contract for a further price review period at the then prevailing Cagamas rate in accordance with the terms and conditions to be agreed upon between the Company and the selling institutions, or to repurchase the remaining balance of HP & L debts initially sold to Cagamas.

Eligibility Criteria of Hire Purchase & Leasing Debts

To be eligible for sale to Cagamas, the hire purchase and leasing debts must:

• be related to hire purchase/sale on credit terms/leasing of equipment;
  
• be fully disbursed and amortising;
  
• not be more than 3 months in arrears at the time of sale;
  
• have a remaining life which expires on or after the price review date;
  
• have a book balance less unearned finance charges, if any, not exceeding RM2 million per debt; and
  
• comply with all other criteria specified in the Cagamas Guide (Hire Purchase and Leasing Debts).

Types of Purchase Facilities Offered by Cagamas

• Fixed Rate
  Cagamas fixed rates are quoted for review periods of 3 to 7 years. The contracted Cagamas rate is fixed for the whole review period for each transaction.
  
  
• Back-to-Back Arrangement
  The back-to-back purchase facility enables originators of HP & L debts who cannot sell their debts directly to Cagamas, to sell their debts through an intermediary financial institution (IFI) for onward sale to Cagamas. The originator is required to execute a Master Agreement with an IFI. Similarly, the IFI is required to execute a Master Sale and Purchase Agreement with Cagamas before it may offer HP & L debts for sale to Cagamas. The originator is required to pay the IFI a one-off up front arrangement fee as the arranger of the sale transaction.

Options Available

• Repayment Option
  The selling institution has the option to pay the instalments in respect of each pool of debts sold to Cagamas, on a monthly, quarterly or half-yearly basis, depending on its funding requirement. This option has to be exercised upon entering into the purchase contract with Cagamas. For quaterly and half-yearly repayment options, the Cagamas rates are 5 basis points and 12 basis points higher than the published Cagamas rates respectively.

Mode of Purchase

• Spot Commitment
  The sale is based on an agreed purchase date. The selling institution is required to sell all debts that were committed to Cagamas within 7 business days from the confirmation date of sale at the published Cagamas rate. The Cagamas rates are published daily in the News Straits Times and The Star newspapers and are also available in the REUTERS.
  
  
• Forward Commitment
  The sale is based on an agreed amount to be fully drawndown within a specified period of up to a maximum of 60 days at an agreed price. The selling institution may deliver its committed amount on a staggered basis or in full or choose to transfer any undelivered committed amount to another financial institution within the specified period.