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RAM Ratings reaffirms ratings of Telekom Malaysia-sponsored property securitisation vehicle’s RM1 bil Sukuk Ijarah

Published on 24 Sep 2020.

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RAM Ratings has reaffirmed the ratings of Tranches A1 to A4 (collectively, the Tranche A Sukuk) and Tranche B3 Sukuk under Menara ABS Berhad’s RM1 bil Sukuk Ijarah Programme (2008/2023). All the ratings have a stable outlook. Menara ABS is a trust-owned special-purpose entity sponsored by Telekom Malaysia Berhad (TM) to facilitate the securitisation of four of its properties – Menara TM, Menara Celcom, TM Taman Desa and TM Cyberjaya (collectively, the Properties or the Portfolio) – via a Sukuk Ijarah Agreement.

Sukuk Ijarah

Rating/
Outlook

Rating Action

Outstanding Amount
(RM million)

Expected
Maturity

Legal
Maturity

Tranche A

Tranche A1

AAA/Stable

Reaffirmed

240

15 January 2021

13 January 2023

Tranche A2

AA2/Stable

Reaffirmed

55

Tranche A3

AA3/Stable

Reaffirmed

40

Tranche A4

AA3/Stable

Reaffirmed

10

Tranche B

Tranche B1

AAA/Stable

Reaffirmed

Redeemed

 

-

 

 

-

Tranche B2

Redeemed

Tranche B3

85

15 January 2021

Tranche C

Unrated

-

500

15 January 2021

13 January 2023

 

The reaffirmation of the Tranche A Sukuk’s ratings is premised on the Portfolio’s credit characteristics and performance, the transaction’s structure and the available liquidity. As the Tranche A Sukuk’s outstanding amount constitutes only 25.6% of the Portfolio’s last appraised market value or 52.6% of our adjusted valuation, it provides significant buffer against any potential decline in market value under the current lacklustre market conditions. In view of the available cash reserve and given that TM is expected to continue meeting its lease obligations, we see minimal risk of cashflow disruption or reduced liquidity affecting periodical distributions of the rated sukuk and redemption of the Tranche B3 Sukuk in January 2021. 

The Portfolio’s net property income (NPI) fell 23.9% to RM50 mil in 2019 – below our sustainable cashflow assumption for the first time – as replacement tenants took longer than expected to relocate to TM Semarak due to a delay in finalising renovation plans as well as Movement Control Order (MCO) disruptions. While we envisage NPI to recover to an estimated RM55.8 mil for 2020, based on 5M 2020 results and new tenancies, it may remain subdued for the near term amidst current market conditions. Minimal rental rebates were granted to tenants during the MCO period. Most of them, comprising either subsidiaries of TM Group or those working offsite, were allowed to continue operation during the period. 

RAM’s discussions with key transaction parties indicate that negotiations between the main stakeholders have resumed and parties are more open to working towards TM’s renewal of leases for all properties at lower rates to facilitate full refinancing of Tranche A and C by expected maturity (EM) in January 2021. This alleviates our earlier concerns over protracted delays in reaching transaction milestones and uncertainty over expected sukuk redemption at EM. 

While a failure to redeem the Tranche A Sukuk on the EM date is a Dissolution Event for the Sukuk, we view the sukukholders as having a low incentive to accelerate a default event, as current market conditions do not favour prospects of recovery from a “forced sale” of the Properties. RAM expects to see more significant headway in the refinancing exercise towards year end. We will continue to monitor developments over the next few months and reassess the ratings if required.

Meanwhile, the ratings of the Tranche B Sukuk reflect TM’s credit profile, given that principal and profit of the Tranche B Sukuk are to be paid through ijarah lease payments from TM. During the review period, TM had promptly paid its RM86.5 mil of lease payments. 

 

Analytical contact
William Tan
(603) 3385 2530
williamtan@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad



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