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Thursday May 17, 2012

RAM reaffirms ratings for Menara ABS sukuks

KUALA LUMPUR: RAM Ratings has reaffirmed the respective AAA, AA2, A1, A2 and AAA ratings of Menara ABS Bhd’s Tranche A1, Tranche A2, Tranche A3, Tranche A4 (Tranche A Sukuk) and Tranche B Sukuk Ijarah.

The rating of Tranche B Sukuk carries a “stable” outlook while the outlook on ratings of Tranche A Sukuk has been revised to “negative” from “stable”.

In a statement, RAM Ratings said Menara ABS was a trust-owned, special-purpose vehicle incorporated solely for the sale-and-leaseback transaction involving four properties – Menara TM, Menara Celcom, TM Taman Desa and TM Cyberjaya – previously owned by Telekom Malaysia Bhd (TM).

Profit payments on the Tranche A Sukuk are covered by lease payments from TM while the principal redemption will be met via proceeds from either refinancing, repurchase by TM or disposal of the properties in the open market.

Meanwhile, the principal redemption and profit payments on the Tranche B Sukuk are met by the lease payments from TM, whose credit profile therefore underpins this tranche’s rating and outlook.

“The reaffirmation of the Tranche A Sukuk’s ratings is premised on the properties’ adjusted valuation of RM657mil, the resultant cumulative loan-to-value ratios and stressed debt service coverage levels that remain in line with their respective ratings.

“The ratings also take into account the minimal counterparty risk, given TM’s role as the master lessee in the 15-year Master Ijarah agreement with Menara ABS.

“We note that TM promptly settled its RM65.39mil of lease payment obligations in December 2011,” it said.

RAM said the revision in outlook on the Tranche A Sukuk to “negative” reflected its concern over the potential weakening of the properties’ cashflow-generating ability.

This was due to the longer-than-expected time taken to fill up vacant space at Menara TM and the significant lease-renewal risk for Menara Celcom, it said.

In 2011, the properties’ net income of RM46mil stayed below the rating agency’s sustainable-cashflow assumption of RM58mil as Menara TM had taken longer than expected to regain full occupancy following its space-optimisation exercise (completed in late 2010).

“Constrained by the weak market conditions for office buildings, it is likely that TM’s net income will take longer than initially assumed to meet our sustainable-cashflow assumption.

“The transaction also faces material renewal risk posed by Menara Celcom as the tenancy of its primary tenant is expiring by end-2012.

“We therefore highlight that a reassessment of the properties’ sustainable value may be necessary if the properties continues to underperform,” RAM said.

The properties are expected to be revaluated in the first half of this year.

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