MARC has reaffirmed the ratings of Ample Zone Berhad’s Sukuk Al-Ijarah (Sukuk) Class A of RM50 million and Class B of RM25 million at AA+ID and AID respectively. However, the RM75.0 million Class C Sukuk has been downgraded to BB-ID from BBID. The ratings of Class A and Class B Sukuk reflects the collateral backing the Sukuk; loan-to-values (LTV) which were within MARC’s acceptable limits; and the credit support provided by funds in the Sukuk Profit Reserve Account (SPRA). The rating of Class C Sukuk reflects the credit rating of Talam Corporation Berhad (TCB). Class A Sukuk carries a stable outlook supported by the impending finalization of sale of Wisma Talam, the proceeds of which should sufficiently retire Class A Sukuk before end-January 2008. However, MARC maintains negative outlook for both Class B and Class C Sukuk premised on significant shortfall in rental collections as compared to projections due to continued non payment of rental from Talam Corporation Berhad (TCB) Group and the resultant strain on AZB’s operational cash flows. As at January 31, 2007, total rental owing from TCB group amounted to RM11.67 million.

TCB is in the midst of finalizing the sale of WT to Hospital Pantai Indah Sdn Bhd for a sum of RM63.5 million. The net proceeds is expected to sufficiently redeem the entire Class A Sukuk and a portion of Class B Sukuk before end-January 2008.

Under this Ijarah sale and lease back transaction, Ample Zone Berhad (AZB), a special purpose vehicle, incorporated solely to undertake this securitisation exercise, acquired four buildings comprising of Menara Maxisegar (MM), Wisma Talam (WT), Midpoint Shopping Complex (MP) and Pandan Kapital Shopping Complex (PK) (the Assets) from three subsidiaries of Talam Corporation Berhad (TCB) and one private company (Sellers). AZB leases the Assets to the Sellers (also the lessees) in return for periodic rental payments. The transaction incorporates partial amortization whereby 22.0% of Class A and 36.0% of Class B Sukuk will be amortized prior to year 7. Assuming the sale of WT is completed and Class A Sukuk is fully redeemed from the proceeds, approximately 64% or RM16 million of Class B Sukuk will be subject to refinancing risk.

Under the original terms of the transaction, disposal of the Assets to the sellers via a purchase undertaking or to TCB v ia an option exercisable by the Sukuk Trustee form the source for redemption of the Sukuk in Year 7. In the event the Assets are not purchased by the sellers or TCB, the Sukuk Trustee also has the power of attorney to dispose the assets to third parties. AZB is currently seeking approval from the Securities Commission (SC) to vary certain terms of the Sukuk so as to allow AZB to dispose the properties even in the absence of a trigger event and/or event of default. The completion of sale of WT is contingent on AZB obtaining approval from the SC to vary the terms of the Sukuk.

As at end-March 2007, LTVs for Class A and Class B are 31% and 47% respectively, comfortably within MARC’s AAA and AA limits. The LTV for Class B will improve significantly post full redemption of Class A Sukuk and RM2 million Class B Sukuk redemption will due in January 2008.

Rental income from February 2006 to January 2007 is approximately 23.1% lower than projections contributed mainly by the significant shortfall in rental income from Menara Maxisegar. Nevertheless, MARC observed improved rental collections as compared to the previous year in respect of Wisma Talam and Pandan Kapital.

Based on the stressed scenario, there will only be sufficient funds from the cash flow to service approximately 70% of Class A profit payments in July 2007. As such, funds in the SPRA will have to be utilized to service the balance of the profit payments. Although funds in the SPRA will be sufficient to cover profit payments during tenure of the Sukuk, continued non-rental payments by TCB Group will result in a technical breach as early as July 2007 as operational cash flows will not be sufficient to replenish the SPRA within the prescribed two months cure period. Post disposal of WT and full redemption of Class A Sukuk, MARC expects support to still be drawn from the SPRA although AZB will require more than six months to replenish the SPRA following principal and profit payments in January 2009.