Tuesday, Feb 08, 2005
MARC has assigned ratings of AAAID, AAID and AID to AZB’s RM50 million Class A Sukuk, RM25 million Class B Sukuk and RM75 million Class C Sukuk. Under this Ijarah sale and lease back transaction, Ample Zone Berhad (AZB), a special purpose vehicle with certain bankruptcy remoteness features, incorporated solely to undertake this securitisation exercise, will acquire four buildings (Assets) from three subsidiaries of Talam Corporation Berhad (TCB) and one private company (Sellers). AZB will lease the Assets back to the Sellers under Ijarah Rental Agreements (IRA) in return for periodic rental payments. To fund the purchase of the Assets, AZB will issue Sukuk, in which the capital (i.e principal) and profit payment source will be the periodic rental payments received by AZB from the Sellers as well as via the disposal of the Assets to the Sellers via Purchase Undertaking / Sale Undertaking or to TCB via an Option Agreement as the case may be.
The ratings reflect the quality of the Assets, the charge over the Designated Accounts to the Sukukholders, liquidity support provided by TCB and the strict loan to value (LTV) ratios adopted by MARC in sizing the capital structure of the senior Sukuks which resulted in high collateral protection. The Class C Sukuk was sized based on the expected cash surplus from the rental payments, after profit payments to the Class A and B Sukuks as well as all relevant expenses of AZB. The rating of the Class C Sukuk reflects the credit rating of TCB (rated A by MARC) by virtue of the Option Agreement given by TCB to the Security Trustee entitling the Security Trustee to require TCB to purchase the Assets upon occurrence of certain events or upon failure of the Sellers to honour their respective obligation under the purchase undertaking.
The Assets namely Menara Maxisegar, Wisma Talam, Midpoint Shopping Complex and Pandan Kapital Shopping Complex are located in the main commercial hub in Pandan Indah, a mixed development scheme approximately 8km to the south east region of Kuala Lumpur city centre. While MARC’s assessment of the Assets revealed high historical and current occupancy rates, stable cash generating patterns, an active suburban economic catchment area and satisfactory physical condition, MARC notes that the Assets are vulnerable to tenant concentration to several key anchor tenants. MARC, however, takes comfort that the cash flow of the Programme remains resilient despite being stress tested under an extreme scenario involving the termination of leases of all key anchor tenants. MARC also noted that the majority of the leases expire in the period 2006 and 2007 although most of the leases incorporated subsequent renewal periods. We, however, take comfort in the historical tenancy profile of the Assets, which have shown stable migration patterns and high renewal rates. Principally, liquidity risk is mitigated by the maintenance of a 12 months pre-funded reserve and the liquidity support accorded by TCB to make good any shortfall in the Sukuk Profit Reserve Account and SPV Expenses Account.
In the event that the Sellers and/or TCB shall be unable to honour their obligations on exercise of the Purchase Undertaking, the Sale Undertaking or as the case may be the Option Agreement, AZB/Sukuk Trustee shall take the necessary actions including appointment of an independent and reputable property agent to act as servicer and to proceed with the disposal of the Assets or part thereof to raise proceeds to meet the payment obligations under the Sukuks. Should these materialise, MARC takes comfort in the quality of the Assets, the high collateral protection accorded to the senior Sukuks by virtue of the conservative LTV levels and the partial amortization of the senior Sukuks starting from year two of the Programme which will further reduce the LTV levels.
The ratings reflect the quality of the Assets, the charge over the Designated Accounts to the Sukukholders, liquidity support provided by TCB and the strict loan to value (LTV) ratios adopted by MARC in sizing the capital structure of the senior Sukuks which resulted in high collateral protection. The Class C Sukuk was sized based on the expected cash surplus from the rental payments, after profit payments to the Class A and B Sukuks as well as all relevant expenses of AZB. The rating of the Class C Sukuk reflects the credit rating of TCB (rated A by MARC) by virtue of the Option Agreement given by TCB to the Security Trustee entitling the Security Trustee to require TCB to purchase the Assets upon occurrence of certain events or upon failure of the Sellers to honour their respective obligation under the purchase undertaking.
The Assets namely Menara Maxisegar, Wisma Talam, Midpoint Shopping Complex and Pandan Kapital Shopping Complex are located in the main commercial hub in Pandan Indah, a mixed development scheme approximately 8km to the south east region of Kuala Lumpur city centre. While MARC’s assessment of the Assets revealed high historical and current occupancy rates, stable cash generating patterns, an active suburban economic catchment area and satisfactory physical condition, MARC notes that the Assets are vulnerable to tenant concentration to several key anchor tenants. MARC, however, takes comfort that the cash flow of the Programme remains resilient despite being stress tested under an extreme scenario involving the termination of leases of all key anchor tenants. MARC also noted that the majority of the leases expire in the period 2006 and 2007 although most of the leases incorporated subsequent renewal periods. We, however, take comfort in the historical tenancy profile of the Assets, which have shown stable migration patterns and high renewal rates. Principally, liquidity risk is mitigated by the maintenance of a 12 months pre-funded reserve and the liquidity support accorded by TCB to make good any shortfall in the Sukuk Profit Reserve Account and SPV Expenses Account.
In the event that the Sellers and/or TCB shall be unable to honour their obligations on exercise of the Purchase Undertaking, the Sale Undertaking or as the case may be the Option Agreement, AZB/Sukuk Trustee shall take the necessary actions including appointment of an independent and reputable property agent to act as servicer and to proceed with the disposal of the Assets or part thereof to raise proceeds to meet the payment obligations under the Sukuks. Should these materialise, MARC takes comfort in the quality of the Assets, the high collateral protection accorded to the senior Sukuks by virtue of the conservative LTV levels and the partial amortization of the senior Sukuks starting from year two of the Programme which will further reduce the LTV levels.