RAM Ratings revises outlook on Tranches A2, A3 and A4 of Menara ABS’ RM1 billion Sukuk Ijarah to stable, reaffirms ratings

Published on 28 April 2015

RAM Ratings has reaffirmed the respective AAA, AA2, A1, A2 and AAA ratings of the Tranche A1, Tranche A2, Tranche A3, Tranche A4 Sukuk (collectively, the Tranche A Sukuk) and the Tranche B Sukuk under Menara ABS Berhad’s RM1 billion Sukuk Ijarah Programme (2008/2023). Concurrently, RAM has revised the outlook on the ratings of Tranches A2, A3 and A4, from negative to stable, while maintaining the stable outlook on Tranches A1 and B.

Sukuk Ijarah	Rating/Outlook	Rating Action	Amount(RM million)	Profit Rate(% per annum)	Expected Maturity	Legal Maturity	LTV Ratio (%)	Stressed DSCR (times)
Tranche A
Tranche A1	AAA/Stable	Reaffirmed	240	5.30%	15 Jan 2021	15 Jan 2023	35.86	2.38
Tranche A2	AA2/Stable	Reaffirmed/revised from Negative	55	5.55%	15 Jan 2021	15 Jan 2023	44.27	1.93
Tranche A3	A1/Stable	Reaffirmed/revised from Negative	40	6.30%	15 Jan 2021	15 Jan 2023	50.50	1.69
Tranche A4	A2/Stable	Reaffirmed/revised from Negative	10	6.90%	15 Jan 2021	15 Jan 2023	52.19	1.64
Tranche B
Tranche B1	AAA/Stable	Reaffirmed	30	4.60%	-	Fully Redeemed	-	-
Tranche B2			40	4.80%	-	15 Jan 2018	-	-
Tranche B3			85	5.30%	-	15 Jan 2021	-	-
Tranche C	Unrated	-	500	10.00%	15 Jan 2021	13 Jan 2023	-	-

The revision of the outlook on Tranches A2, A3 and A4 is based on the better-than-assumed net property income (NPI) of the underlying Properties (i.e. Menara TM, Menara Celcom, TM Taman Desa and TM Cyberjaya). The improved NPI is driven by materially positive rental revisions on all of Telekom Malaysia Berhad’s (TM) in-house tenants, which are - on average - above the rental rates imposed on external tenants and higher than those within the surrounding area. The higher NPI margins of certain assets in the portfolio had also contributed to the healthier NPI. The current performance, if sustained, will help mitigate the potential income loss from the relocation of the replacement tenants when Celcom Axiata vacates Menara Celcom by 2016 (Celcom Axiata intends to extend its lease expiry from September 2015). Nevertheless, we will only consider revising the ratings when the currently soft Klang Valley office market recovers to levels that are supportive of the portfolio’s current rental rates.

Meanwhile, the reaffirmation of the rating of the Tranche A Sukuk reflects our opinion that the adjusted valuation of the Properties (of RM656.2 million), the resultant cumulative loan-to-value ratios and the stressed debt service coverage levels remain in line with their respective ratings and, concurrently, our view on their quality and cashflow-generating ability. The rating also considers the minimal counterparty risk given TM’s role as the Master Lessee under the 15-year Master Ijarah Agreement with Menara ABS. Nonetheless, this is moderated by the high tenant- and asset-concentration risk from the TM Group and Menara TM, respectively, apart from the risk to the portfolio’s NPI from a soft office market. The Tranche B Sukuk’s rating mirrors TM’s credit profile (debt facilities rated AAA/Stable), driven by its steady and strategic business profile as the national telecommunications provider in Malaysia.

Menara ABS is a trust-owned, special-purpose vehicle incorporated solely for the Sukuk Ijarah agreement involving the Properties. 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 the disposal of the Properties in the open market. During the reviewed period, TM had promptly settled its RM75.2 million of lease obligations, met its periodic distribution obligation of RM63.6 million on the Tranche A, Tranche B and Tranche C Sukuk, and fulfilled the final distribution of RM11.9 million on the Tranche B Sukuk.

Media contact
Chin Jin Han
03 7628 1168
jinhan@ram.com.my