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Press Release
24 Apr | Tuesday
RAM Ratings reaffirms ratings of Telekom Malaysia-sponsored property securitisation vehicle’s RM1 billion Sukuk Ijarah

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).
 

Sujuk Ijarah Rating/Outlook Rating Action Outstanding Amount (RM million) LTV Ratio (%) Stressed DSCR (times)
Tranche A
Tranche A1
AAA/Stable
Reaffirmed
240
36.57
2.83
Tranche A2
AA2/Stable
Reaffirmed
55
44.96
2.30
Tranche A3
AA3/Stable
Reaffirmed
40
51.05
2.03
Tranche A4
AA3/Stable
Reaffirmed
10
52.57
1.97
Tranche B
Tranche B1
AAA/Stable
Reaffirmed
Redeemed
-
-
Tranche B2
Redeemed
-
-
Tranche B3
85
-
-
Tranche C
Unrated
-
500
-
-

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.

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

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

Date of release: 24 April 2018

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 2018 by RAM Rating Services Berhad’s

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