RAM Ratings reaffirms ratings of Menara ABS’s RM1 billion sukuk, revises outlook on Tranche A Sukuk from negative to stable

Published on 13 May 2013

RAM Ratings has reaffirmed the long-term ratings of Menara ABS Berhad’s (“the Issuer”) Tranche A1, Tranche A2, Tranche A3, Tranche A4 (collectively known as “the Tranche A Sukuk”) and Tranche B Sukuk Ijarah at AAA, AA2, A1, A2 and AAA, respectively. At the same time, the negative outlook on the ratings of the Tranche A Sukuk has been reverted to stable while the stable rating outlook on the Tranche B Sukuk has been maintained.

Menara ABS is a trust-owned, special-purpose vehicle incorporated solely for this sale-and-leaseback transaction involving 4 properties - Menara TM, Menara Celcom, TM Taman Desa and TM Cyberjaya (collectively, “the Properties”) – which had been previously owned by Telekom Malaysia Berhad (“TM” or “TM Group”). Profit payments on the Tranche A Sukuk are covered by lease payments from TM while the principal redemption will be met via proceeds from either refinancing, repurchase by TM or disposal of the Properties in the open market. Meanwhile, the principal redemption and profit payments on the Tranche B Sukuk are met by the lease payments from TM, whose credit profile therefore underpins this tranche’s rating and outlook. 

The reaffirmation of the Tranche A Sukuk’s ratings is premised on the Properties’ adjusted valuation of RM656.21 million, the resultant cumulative loan-to-value ratios and stressed debt service coverage levels that remain in line with their respective ratings. The ratings also take into account the minimal counterparty risk given TM’s role as the Master Lessee in the 15-year Master Ijarah Agreement with Menara ABS. We note that TM promptly settled its RM65.39 million of lease payment obligations in December 2012.

The negative outlook had been assigned to the Tranche A Sukuk in May 2012, following our concerns over the potential weakening in the Properties’ cashflow-generating ability due to the longer-than-expected time taken to fill up vacant space at Menara TM and the significant non-renewal risk of Celcom Axiata Berhad’s (“Axiata”) lease at Menara Celcom. While Axiata has renewed its leases up to September 2015, Menara Celcom remains at risk as a single-tenanted building. We note, however, that the property manager has expended more effort into improving the occupancy level of Menara TM and identified contingency plans for potential vacancy in Menara Celcom in the event that Axiata terminates its leases in 2015. In this respect, RAM has revised the outlook on the Tranche A Sukuk’s ratings, from negative to stable, premised on our expectations that the Properties’ performance will eventually converge to a more sustainable level, in line with our assumption for the medium term.

 

Based on the revaluation of the Properties in October 2012, their total market valuation has increased by 7.79% to RM1,116.50 million (previously RM1,035.75 million). In this review, RAM has adopted the “discounted cashflow” method, taking into account the net property income achieved in 2012 to arrive at the revised adjusted valuation of RM36.84 million for TM Convention Centre (“TMCC”) (previously: RM19.47 million), as a result of the reconfiguration of the building into meeting rooms, small offices and retail space. All things considered, RAM has maintained the Properties’ adjusted valuation despite the revised valuation for TMCC.

Media contact

Asif M Noh

03-7628 1175

asif@ram.com.my