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RAM Ratings downgrades Menara ABS’s Tranche A Sukuk

Published on 29 Mar 2022.

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RAM Ratings has downgraded the ratings of the RM345 mil Tranche A1 to A4 Sukuk (collectively, the Tranche A Sukuk) under Menara ABS Berhad’s (the Issuer or Lessor) RM1 bil Sukuk Ijarah Programme (2008/2023) (see table). Concurrently, the outlook on the ratings has been maintained at negative. 

The rating downgrade reflects our increased concerns over challenges faced in realising sufficient disposal proceeds to make timely redemption of the sukuk by the legal maturity date, notwithstanding the adequate loan to value ratios afforded by the pledged collaterals. The negative outlook indicates potential for further downgrades as legal maturity approaches.

Sukuk Ijarah

Rating/Outlook

Rating Action

Outstanding
Amount

(RM mil)

Expected Maturity

Legal Maturity

Tranche A

Tranche A1

Tranche A2

Tranche A3

Tranche A4

BBB1/Negative

BBB3/Negative

BB2/Negative

BB2/Negative

Downgraded from AA2/Negative

Downgraded from A1/Negative

Downgraded from A3/Negative

Downgraded from A3/Negative

240

55

40

10

15 January 2021

13 January 2023

Tranche B

-

-

Redeemed

-

-

Tranche C

Unrated

 

500

15 January 2021

13 January 2023

Total

 

 

845

 

 

 

Delayed discussions and protracted negotiations to conclude lease renewals and sukuk redemption plans since early last year have compromised the efficacy of the transaction mechanics, causing asset disposals to be formally initiated only this year. The property sale by way of expression of interest and tender, led by WTW Real Estate Sdn Bhd (CBRE), began on 7 February 2022, the outcome of which will only be known mid-year. Our discussions with the Issuer and CBRE indicate that potential buyer(s) have yet to be identified for Menara TM, TM Semarak and TM Taman Desa (collectively, the Residual Assets). 

On 23 February 2022, Telekom Malaysia (TM, the Master Lessee) exercised its right to acquire only TM Cyberjaya for RM44.75 mil and extend leases on small parts of Menara TM and TM Taman Desa (around 13%-38% of net lettable area, respectively). The Master Lessee’s selective asset purchase has resulted in a heavy reliance on the sale of Menara TM for full redemption of the rated sukuk. Assuming majority of existing non-TM tenants renew their leases, the potentially higher vacancy rates of the Residual Assets arising from no immediate replacement tenants for spaces vacated by TM will be an added consideration for any new owner.

An already oversupplied office property market, compounded by weak rental growth and tenants’ evolving office space needs amid the health crisis, adds pressure to property liquidity and valuations. This coupled with the shorter remaining master lease period caused the portfolio’s latest market valuation to fall 23.6% to RM802 mil. RAM’s adjusted valuation of the portfolio of RM539.5 mil has considered the potential near-term market value decline. 

We understand that no other contingent plans are being contemplated at this juncture, including the provision of special funding by Tranche C sukukholders to redeem Tranche A sukuk. As the Issuer has about nine months to complete all property sales (by the sukuk legal maturity in January 2023), further delays from CBRE’s expected timeline for the completion of the exercise within the next six months will trigger further rating downgrades. Nonetheless, we have no concerns over TM’s ability to fulfil its remaining lease obligations, which will be sufficient to meet remaining periodic distributions of the rated sukuk up to legal maturity. 

Menara ABS is a trust-owned special-purpose entity sponsored by TM to facilitate the securitisation of four of its properties – Menara TM, Menara Celcom, TM Taman Desa and TM Cyberjaya – via a sale and leaseback or master ijarah arrangement. 

 

Analytical contacts
Joel Thum
(603) 3385 2517
joel@ram.com.my

Tan Han Nee
(603) 3385 2529
hannee@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 2022 by RAM Rating Services Berhad



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