This article first appeared in The Edge Malaysia Weekly on November 6, 2023 - November 12, 2023

THE sukuk holders of Menara ABS Bhd are in a bind as the sale of the iconic Menara TM remains a challenge. The oversupply of office space does not augur well for sellers, particularly desperate ones like Menara ABS, which has failed to redeem its Islamic bonds.

Menara ABS is a special-purpose vehicle that was set up in 2008 to help Telekom Malaysia Bhd (TM) raise RM1 billion through an asset securitisation structure that essentially involved the sale and leaseback of four of its office blocks in a 15-year master lease agreement with TM. The four properties are Menara TM, TM Semarak (formerly known as Menara Celcom), TM Taman Desa and TM Cyberjaya.

Menara TM is the main asset that will ensure the full redemption of the Menara ABS sukuk as it contributed 74% to portfolio value based on a 2021 market valuation, according to a September 2022 RAM Ratings report.

It is learnt that the sale of Menara TM has created disagreement between the two main sukuk holders of Menara ABS, namely Lembaga Tabung Haji (TH) and the Employees Provident Fund (EPF).

A source says an offer was made for Menara TM but one of the sukuk holders rejected the deal due to the pricing and identity of the buyer.

“It is now back to the drawing board. The only way for TH and EPF to exit their investment is to either sell the buildings in Menara ABS or find a new anchor tenant. If not, they will need to refinance the sukuk,” the source says.

Another source says there was an earlier plan to change the name of Menara TM, but nothing is concrete so far.

A source points out that under the Menara ABS structure, TH has the most to lose as it took up the entire RM500 million unrated portion of tranche C, which makes the pilgrim fund the last to receive payments from any asset disposal in Menara ABS.

It is understood that tranche A bondholders will be getting the redemption first before tranche C bondholders. However, tranche C sukuk holders were given a higher coupon rate because of higher risk.

It is also understood that TH had subscribed for some RM600 million worth of the sukuk by Menara ABS.

When contacted, TH says it is in discussions with the other sukuk holders to find the best solution to the Menara ABS matter.

“TH is committed to protect the interests of its depositors. TH is still in discussion with all Menara ABS sukuk holders for an effective and optimal resolution to the matter.

“Any decision taken for Menara ABS will be guided by the sukuk agreements and voting by the sukuk holders. TH does not hold the majority vote for Menara ABS,” it says in its reply to The Edge’s enquiry via email.

The EPF, which is understood to have the majority vote for Menara ABS, had not responded to questions at press time. The retirement fund holds tranche A sukuk which has priority in redemption.

Last month, Minister in the Prime Minister’s Department (Religious Affairs) Datuk Mohd Na’im Mokhtar commented on the matter in a parliamentary reply. Mohd Na’im pointed out that TH “does not support any asset disposal below market value”.

It is worth noting that TM moved out of the 55-storey building in January this year after its lease agreement expired.

In the same month, RAM Ratings downgraded the Menara ABS RM1 billion sukuk to a D rating, which is considered a default. The D rating reflected Menara ABS’ failure to redeem the RM345 million tranche A sukuk that was due on Jan 13, 2023.

The downgrade also came after TM announced in January its plan to relocate the majority of its corporate offices to properties it currently owns, including TM Annexe 1 and TM Annexe 2, as well as office space in Cyberjaya as part of the company’s optimisation programme and to accommodate hybrid working conditions.

“TM does not own the said building (Menara Telekom), and is not involved in its intended sale by the property’s owner, Menara ABS Bhd,” it clarified in a statement last year.

A source familiar with the securitisation exercise says the telco’s decision to shift out of Menara TM, which served as its HQ for years, and not buying back the office blocks, came as a surprise to the sukuk holders. 

Last week, The Edge visited Menara TM and found that more than 33 floors of the building were vacant. Only eight floors are occupied by TM while other tenants have taken up 10 floors.

In other words, Menara TM has been underutilised for almost 10 months, which does not speak well of Menara ABS’ cash flow.

It is worth noting that some of the Menara ABS sukuk has been redeemed under tranche A following the sale of TM Semarak for RM72 million and TM Taman Desa for RM35.3 million. Menara ABS would need to sell the other two buildings to complete the redemption.

Menara ABS’ problems arose after the lease agreements of the four properties within the sukuk expired in January 2020, and neither TM nor the sukuk holders could come to an agreement on the leases.

According to TH in its 2019 annual report, under the terms of the transaction, the redemption of tranche A amounting to RM345 million, on its expected maturity date of Jan 15, 2021, was to be met by Menara ABS through refinancing if TM opted for a lease extension or via disposal proceeds if TM chose to buy back all or any of the assets.

“If TM exercised neither alternative and decided to vacate and return the properties, AmanahRaya Trustee, the Securities Trustee, had the right to put the assets up for sale to ensure full and timely redemption of the tranche A sukuk by its legal maturity date of Jan 13, 2023,” TH said. Covid-19 delayed the process.

Under the sale and purchase agreement signed in January 2008, Menara ABS bought Menara TM, Wisma TM Taman Desa and Cyberjaya Complex for RM850 million. On top of that, under a separate agreement, Menara ABS acquired Menara TM Semarak from TM for RM150 million.

Menara ABS raised the RM1 billion sukuk via three tranches — tranche A of RM345 million, tranche B of RM185 million and an unrated tranche C of RM500 million. Both tranches A and C matured for redemption in January this year. Tranche B has been fully redeemed.

As TM decided not to exercise its right to buy back the three properties, on behalf of the sukuk holders, CBRE|WTW was in early June 2021 engaged to plan and drive asset leasing to dispose of the unsold properties on the open market. 

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