RAM Ratings has reaffirmed the ratings of Tranches A1 to A4 (collectively the Tranche A Sukuk) and the Tranche B Sukuk under Menara ABS Berhad’s RM1,000 million Sukuk Ijarah Programme (2008/2023). The respective ratings carry stable outlooks. Menara ABS is a trust-owned, special-purpose vehicle incorporated by Telekom Malaysia Berhad (TM) solely to facilitate the Sukuk Ijarah Agreement involving Menara TM, Menara Celcom, TM Taman Desa and TM Cyberjaya (collectively the Properties).
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The reaffirmation of the Tranche A Sukuk’s ratings is based on our view that the Properties’ adjusted valuation of RM656.2 million remains in line with their asset quality and cashflow generating ability amidst current office property market environment. While the Portfolio’s net property income (NPI) fell 12% y-o-y in 2017, mainly due to a lower average occupancy rate at Menara TM, it was within our expectations. The NPI had also exceeded our sustainable cashflow assumption of RM57.8 million as a result of higher average rental rates (ARRs) charged to TM tenants and its affiliates (collectively the TM Group) which, in our opinion, are higher than the market range of similar properties in the vicinity and not reflective of current market conditions. We note that the ARRs charged to external tenants are still comparable to market rates.
Celcom Axiata Berhad, Menara Celcom’s anchor tenant, may extend its current lease in the short term due to delays in the completion of its new headquarters – Celcom had previously extended its lease by a year until end-September 2018. Should another external tenant not come on board upon the expiry of Celcom’s lease, the building may be occupied by TM subsidiaries, although the situation remains fluid at this juncture. We will continue to monitor the Portfolio and reassess our view on Menara Celcom accordingly.
Meanwhile, the ratings of the Tranche B Sukuk reflect TM’s credit profile, given its role as Lessee in the Master Ijarah Agreement. Further, both principal and profit of the Tranche B Sukuk are to be paid through the ijarah lease payments. During the review period, TM had promptly settled its lease payment of RM75.2 million. However, as the property manager, there continue to be instances of delays in the provision of monthly monitoring reports by TM, though this is not envisaged to affect the credit quality of the transaction.
The Tranche A Sukuk’s ratings are moderated by high tenant and asset concentration risks, particularly relating to the TM Group and Menara TM, which contributed a respective 61% and 73% of the Properties’ rental revenue in 2017. The Portfolio may also be subject to biased selection by TM, as certain assets appeal only to a limited tenant or investor base due to their highly specialised nature. Additionally, the current soft office leasing market may make raising rents at some of the properties such as Menara Celcom challenging, given that these have not seen notable refurbishments in the past few years.