[RAM] RAM Ratings downgrades Menara ABS's Tranche A Sukuk, revises outlook to negative

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). We have also revised the outlook on the ratings to negative from stable. The rating downgrade reflects our concerns over the shorter time window to reach a resolution on lease negotiations and disposal of the underlying properties by the legal maturity date of the sukuk.

The rating action also factored in our expectation of weaker credit quality of the underlying properties as a result of the impact of Covid-19, after the TM master lease expires in January 2023. Accordingly, we revised our cashflow and valuation assumptions downwards with steady-state vacancy rates of 15-20% and blended capitalisation rate of 9.30%.  Although the resultant higher loan to value ratios and lower debt service coverage ratios translate to weaker credit support for Tranches A1 to A4 Sukuk Ijarah from levels observed during our previous review, they remain supportive of the current ratings. We have no concerns over TM’s ability to fulfil its remaining lease obligations, which will be sufficient to meet remaining periodic distributions of Tranche A up to legal maturity.

Pursuant to TM’s decision to not exercise its rights to buy back Menara TM, TM Semarak and TM Taman Desa (Unsold Properties), the Issuer (on behalf of the sukukholders) in early June 2021 appointed real estate adviser, WTW Real Estate Sdn Bhd (CBRE), to plan and drive asset leasing and process to dispose the Unsold Properties in the open market. On 31 May 2021, the sukukholders approved an extension of the period available for Tranche C sukukholders to exercise the option to provide special funding to the Issuer to fully redeem Tranche A sukuk (originally applicable only at expected maturity). This provides potential liquidity support to the sukuk redemption, although it is subject to the receipt of a written purchase offer from any prospective third-party buyer. 

Assuming CBRE and Menara ABS conclude their plans within the next two months, the Issuer will be left with only up to 16 months to complete the disposal of the properties. While we observed some progress in weekly discussions between CBRE and Issuer in the past month, timing will be the key rating consideration going forward. The lack of material progress over the next six to eight months will trigger further rating downgrades.

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

Tan Han Nee
(603) 3385 2529