MARC has assigned ratings of AAAIS , AAIS and AAAIS(bg) to ABS Logistics Berhad (ALB)’s Class A, Class B and Class C Senior Sukuk respectively. The ratings of Class A and B Senior Sukuk reflect the quality of the collateral comprising of 23 warehouses, protective structural features of the transaction, and relatively low actual loan-to-values (LTVs) for each of Class A and Class B Senior Sukuk. Actual LTVs for Class A and B Senior Sukuk are projected at 25.3% and 37.9% respectively at maturity. Of the RM100.0 million of Class A Senior Sukuk, RM60.0 million will be paid down prior to its final legal maturity. Including the projected reserve account balance of RM3.55 million and collection account balance of RM11.3 million at the end of year 10, the net amount of Class A and Class B exposed to refinancing risk prior to their respective final legal maturity will be RM45.2 million. The rating of the Class C Senior Sukuk reflects an unconditional and irrevocable guarantee provided by Malayan Banking Berhad (Maybank).

Under this transaction, a bankruptcy remote special purpose vehicle, ALB, will acquire a portfolio of properties comprising of 23 warehouses (properties) from integrated logistics provider, Tiong Nam Logistics Holdings Berhad (Tiong Nam) and/or its subsidiaries. The purchase of the properties will be funded by the issuance of RM100.0 million nominal value of Class A, RM20.0 million nominal value of Class B, RM40.0 million nominal value of Class C Sukuk Ijarah (Senior Sukuk), RM44.5 million nominal value of Class D Sukuk Ijarah (Mezzanine Sukuk) and RM95.5 million nominal value Class E Sukuk Ijarah (Subordinated Sukuk) (Senior Sukuk, Mezzanine Sukuk and Subordinated Sukuk are referred to as Sukuk). Pursuant to the sale of the properties, ALB will enter into an Ijarah agreement with Tiong Nam Logistics Solutions (TNLS) (the lessee) under which the latter will lease the properties for a period of up to ten years.

Repayment of the Sukuk will be funded by monthly Ijarah rentals made by the lessee during the tenure of the transaction as well as the proceeds from either the repurchase of the properties via a call option exercised by the lessee or sale of the properties to third parties prior to the final legal maturity. The Ijarah rentals by the lessee are on net lease basis; and will not be subjected to set-off, deduction and counterclaim by the lessee. The Ijarah rentals have been sized based on 65% to 78% of Tiong Nam’s projected net operating income during the tenure of the transaction. The transaction incorporates a call option which gives the lessee the option to purchase some or all of the properties from ALB at any time between the 120th day preceding the fifth anniversary until the 90th day preceding the ninth anniversary of commencement of the lease. In the event the option is exercised, the exercise price will be the higher of the fair market value of the properties and the aggregate amount required to redeem all the outstanding Senior Sukuk and any accrued profit. The sale of the properties has been structured as true-sale for legal purposes with the rights in, title to and interest in the properties being transferred to ALB.

The securitised properties comprising of 23 industrial warehouses, are located in Johor, Selangor, Pahang, Perlis, Penang and Perak, with a combined market value of RM191.06 million. The current occupancy rate of the collateral portfolio is estimated at 90%. The portfolio is exposed to some concentration with top ten tenants contributing 55.0% of its total rental revenue. The securitised properties have estimated annual rental revenue of RM16.22 million, representing an average investment return of 8.40%.

Listed on the Main Board of Bursa Malaysia since 1985, the holding company of the lessees, Tiong Nam maintains approximately 770 trucks, owns 26 general and 7 bonded warehouses for the provision of integrated transportation and logistics services. Tiong Nam registered a turnover of RM199.9 million and a loss before tax of RM5.2 million in FY2006. Excluding a RM7.8 million deficit in revaluation of properties, its pre-tax profits would have been RM2.6 million. Tiong Nam has been assigned a corporate credit rating of A- by MARC in connection with this transaction.