KUALA LUMPUR (July 29): RAM Rating Services Bhd (RAM Ratings) has downgraded the ratings of the RM345 million Tranche A1 to A4 sukuk under Menara ABS Bhd’s RM1 billion Sukuk Ijarah Programme to “negative” from “stable” on short-term concerns in reaching a resolution on lease negotiations and disposal of the underlying properties by the legal maturity of the sukuk.

The Tranche A1 to A4 sukuk, collectively known as Tranche A sukuk, will be maturing in January 2023.

The rating agency also factored in expectations of weaker credit quality of the underlying properties as a result of Covid-19 after the Telekom Malaysia Bhd (TM) master lease expires in January 2023. 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.

“Accordingly, we revised our cash flow and valuation assumptions downwards with steady-state vacancy rates of 15% to 20% and a blended capitalisation rate of 9.3%. Although the resultant higher loan-to-value ratios and lower debt service coverage ratios translate into weaker credit support for Tranche A sukuk 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,” RAM Ratings said in a report.

Pursuant to TM’s decision to not exercise its rights to buy back unsold properties Menara TM, TM Semarak and TM Taman Desa, Menara ABS — on behalf of the sukukholders — in early June appointed real estate adviser WTW Real Estate Sdn Bhd (CBRE) to plan and drive asset leasing to dispose of the unsold properties in the open market.

On May 31, the sukukholders approved an extension of the window for Tranche C sukukholders to exercise the option to provide special funding to Menara ABS to fully redeem Tranche A sukuk, which was originally applicable only upon 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, Menara ABS 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 Menara ABS last month, timing will be the key rating consideration going forward,” RAM Ratings said.

It cautioned that lack of material progress over the next six to eight months would trigger further rating downgrades.