RAM Ratings has reaffirmed the ratings of the Tranche A1, Tranche A2, Tranche A3, Tranche A4 (collectively the Tranche A Sukuk) and Tranche B Sukuk under Menara ABS Berhad’s RM1,000 million Sukuk Ijarah Programme (2008/2023).

Published on 05 May 2017.

RAM Ratings has reaffirmed the ratings of the Tranche A1, Tranche A2, Tranche A3, Tranche A4 (collectively the Tranche A Sukuk) and Tranche B Sukuk under Menara ABS Berhad’s RM1,000 million Sukuk Ijarah Programme (2008/2023). Menara ABS is a trust-owned, special-purpose vehicle incorporated by Telekom Malaysia Berhad (TM) solely for the Sukuk Ijarah agreement involving Menara TM, Menara Celcom, TM Taman Desa and TM Cyberjaya (collectively the Properties).

The ratings of the Tranche A Sukuk are based on our view that the securitised portfolio’s adjusted valuation of RM656.2 million (against its latest market valuation of RM1.27 billion) adequately reflects its quality and cashflow generating ability vis-à-vis the overall office property leasing market, which continues to be soft. As such, the resultant loan-to-value and debt service coverage ratios remain commensurate with their respective ratings. The ratings also consider the minimal counterparty risk and low termination risk arising from the 15-year Master Ijarah Agreement between Menara ABS and TM due to the latter’s superior credit profile. 

The ratings of the Tranche B Sukuk mirror TM’s credit profile because of its role as lessee in the Master Ijarah Agreement and given that both principal and profit payments of the sukuk are to be met through Ijarah lease payments. During the review period, TM had promptly settled RM75.2 million of lease payments. The quarterly transaction administrator’s report as at 31 March 2017 indicates that Menara ABS has sufficient funds in the Designated Accounts to redeem the Tranche B2 sukuk due in January 2018. That said, we note that there have been instances whereby the provision of monthly monitoring reports by the property manager was slightly delayed.

In 2016, the securitised portfolio’s net property income (NPI) grew 10% y-o-y to RM79 million, mainly driven by its 2 largest properties, Menara TM and Menara Celcom, which recognised higher rents on average. However, the y-o-y improvement was largely supported by TM tenants, which yield asking rents at a more than 40% premium over non-TM affiliated tenants. The RM4.76 psf average rental rate paid by non-TM tenants remained in line with the market. The full-year recognition of escalated rentals arising from Celcom Axiata Berhad’s lease extension also contributed to the portfolio’s higher NPI. The portfolio’s average occupancy rate during the year was stable at 94%.

Following tenant movement involving 135k sf of net lettable area (NLA) or around 14% of Menara TM’s total office NLA in December 2016, we expect to see some near-term disruption in occupancy at the property in 2017. Around 32% of the vacated space has been taken up by external tenants since January 2017 while most of the balance will likely be occupied by 2H 2017. Menara TM will experience some revenue loss during this period, but we do not envisage it to be prolonged. For Menara Celcom, the building manager has identified 2 tenants from Telekom Malaysia that are anticipated to occupy the building when Celcom’s lease expires (expected to end on 30 September 2018), although we have considered a more gradual recovery in occupancy.

Meanwhile, the ratings are moderated by high tenant- and asset-concentration risks, particularly relating to the TM Group and Menara TM, which contributed a respective 63% and 75% of the Properties’ rental revenue in 2016. The portfolio may also be subject to adverse selection by TM, and certain assets will only appeal to a limited tenant or investor base due to their highly specialised nature. Further, given the currently soft office leasing market, raising rents at some of the properties (e.g. Menara Celcom and Wisma TM Taman Desa) may be challenging because they have not seen significant enhancement works in the past few years. 

Analytical contact
Chin Jin Han
(603) 7628 1168
jinhan@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my