IslamicMarkets uses cookies.
About our cookie policy.
  of  

or
Sign in to continue reading...

RAM Ratings Reaffirms Ratings of Axis REIT Sukuk's RM155 Million Second Sukuk

IM Press Release
By IM Press Release
1 year ago
RAM Ratings Reaffirms Ratings of Axis REIT Sukuk's RM155 Million Second Sukuk

Islam

Create FREE account or Login to add your comment
0 Comments


Transcription

  1. IB ​ ​Press​ ​Release​ ​Service Published​ ​on:​​ ​IslamicBanker.com​ ​Publications:​ ​https://www.islamicmarkets.com/publications RAM​ ​Ratings​ ​Reaffirms​ ​Ratings​ ​of​ ​Axis​ ​REIT Sukuk's​ ​RM155​ ​million​ ​Second​ ​Sukuk 5​ ​September​ ​2017 RAM​ ​Ratings​ ​has​ ​reaffirmed​ ​the​ ​ratings​ ​of​ ​Axis​ ​REIT​ ​Sukuk​ ​Berhad's​ ​(ARSB)​ ​RM155​ ​million Class​ ​A,​ ​Class​ ​B,​ ​Class​ ​C​ ​and​ ​Class​ ​D​ ​Sukuk​ ​under​ ​its​ ​Second​ ​Sukuk​ ​Issue​ ​(collectively,​ ​the Second​ ​Sukuk);​ ​the​ ​respective​ ​AAA,​ ​AA1,​ ​AA2​ ​and​ ​AA3​ ​ratings​ ​have​ ​a​ ​stable​ ​outlook.​ ​The Second​ ​Sukuk​ ​is​ ​secured​ ​against​ ​4​ ​office​ ​buildings​ ​ ​Menara​ ​Axis​ ​(MA),​ ​Crystal​ ​Plaza​ ​(CP),​ ​Axis Business​ ​Park​ ​(ABP)​ ​and​ ​Quattro​ ​West​ ​(QW)​ ​(collectively,​ ​the​ ​Properties). We​ ​have​ ​reaffirmed​ ​the​ ​ratings​ ​based​ ​on​ ​the​ ​underlying​ ​credit​ ​support​ ​available​ ​for​ ​the transaction,​ ​which​ ​remains​ ​intact​ ​in​ ​spite​ ​of​ ​revisions​ ​to​ ​the​ ​portfolio's​ ​assumed​ ​sustainable cash​ ​flow​ ​and​ ​assessed​ ​stressed​ ​capital​ ​value​ ​of​ ​RM28.5​ ​million​ ​and​ ​RM292.3​ ​million, respectively​ ​(from​ ​RM29.8​ ​million​ ​and​ ​RM305.4​ ​million).​ ​The​ ​revisions​ ​are​ ​premised​ ​on​ ​our​ ​view that​ ​the​ ​portfolio​ ​is​ ​unlikely​ ​to​ ​improve​ ​to​ ​the​ ​levels​ ​we​ ​had​ ​previously​ ​assumed​ ​given​ ​various market​ ​challenges.​ ​The​ ​resultant​ ​cumulative​ ​loan-to-value​ ​ratios​ ​and​ ​debt​ ​service​ ​coverage ratios​ ​of​ ​the​ ​Class​ ​A​ ​to​ ​Class​ ​D​ ​Sukuk,​ ​however,​ ​remain​ ​commensurate​ ​with​ ​their corresponding​ ​ratings. While​ ​there​ ​was​ ​an​ ​improvement​ ​in​ ​the​ ​portfolio's​ ​net​ ​property​ ​income​ ​(NPI)​ ​in​ ​2016,​ ​this​ ​has not​ ​been​ ​sustained​ ​and​ ​remains​ ​below​ ​our​ ​assumptions.​ ​The​ ​Properties'​ ​NPI​ ​edged​ ​up​ ​5%​ ​to RM28.1​ ​million​ ​in​ ​2016​ ​(2015:​ ​RM26.7​ ​million),​ ​underpinned​ ​by​ ​better​ ​average​ ​occupancy​ ​rates (AORs).​ ​Nonetheless,​ ​the​ ​figure​ ​is​ ​still​ ​below​ ​RAM's​ ​assumed​ ​sustainable​ ​cashflow​ ​of​ ​RM29.8 million​ ​and​ ​failed​ ​to​ ​carry​ ​through​ ​to​ ​1H​ ​2017​ ​due​ ​to​ ​a​ ​higher​ ​incidence​ ​of​ ​non-renewed​ ​leases; revenue​ ​dipped​ ​2%​ ​y-o-y​ ​following​ ​a​ ​decline​ ​in​ ​its​ ​AOR​ ​to​ ​75%​ ​(1H​ ​2016:​ ​78%).​ ​Moreover, earlier​ ​expectations​ ​of​ ​increased​ ​car-park​ ​revenue​ ​to​ ​boost​ ​NPI​ ​had​ ​failed​ ​to​ ​materialise​ ​amid competitive​ ​pressures.​ ​We​ ​expect​ ​the​ ​Properties'​ ​NPI​ ​to​ ​be​ ​depressed​ ​in​ ​2017​ ​given​ ​the​ ​higher vacancies​ ​and​ ​persistent​ ​pressure​ ​on​ ​rental​ ​rates​ ​in​ ​order​ ​to​ ​maintain​ ​their​ ​competitiveness​ ​in​ ​a soft​ ​market. The​ ​revised​ ​sustainable​ ​cash​ ​flow​ ​assumption​ ​reflects​ ​our​ ​expectation​ ​that​ ​it​ ​will​ ​take​ ​longer​ ​for the​ ​portfolio's​ ​AOR​ ​to​ ​recover​ ​to​ ​its​ ​historical​ ​levels,​ ​besides​ ​continued​ ​pressure​ ​on​ ​rental​ ​rates. Given​ ​the​ ​market's​ ​demand-supply​ ​imbalance​ ​and​ ​weak​ ​business​ ​sentiment,​ ​the​ ​revision​ ​also reflects​ ​high​ ​renewal​ ​risk​ ​for​ ​the​ ​Properties​ ​in​ ​2019​ ​(about​ ​47%​ ​of​ ​their​ ​leases)​ ​and​ ​the​ ​pressure to​ ​maintain​ ​occupancy​ ​levels​ ​at​ ​competitive​ ​rental​ ​rates.
  2. IB ​ ​Press​ ​Release​ ​Service Published​ ​on:​​ ​IslamicBanker.com​ ​Publications:​ ​https://www.islamicmarkets.com/publications We​ ​are​ ​concerned​ ​about​ ​the​ ​prospects​ ​of​ ​ABP​ ​and​ ​QW.​ ​The​ ​AOR​ ​of​ ​ABP​ ​has​ ​been underperforming​ ​our​ ​assumptions,​ ​at​ ​below​ ​70%​ ​over​ ​the​ ​last​ ​3​ ​years.​ ​Although​ ​some​ ​recovery may​ ​be​ ​possible,​ ​we​ ​do​ ​not​ ​expect​ ​it​ ​to​ ​reach​ ​the​ ​levels​ ​we​ ​had​ ​previously​ ​assumed.​ ​We believe​ ​this​ ​will​ ​also​ ​be​ ​true​ ​for​ ​QW,​ ​the​ ​AOR​ ​of​ ​which​ ​has​ ​fallen​ ​to​ ​50%​ ​in​ ​recent​ ​months.​ ​Due to​ ​the​ ​ongoing​ ​construction​ ​of​ ​office​ ​buildings​ ​in​ ​the​ ​immediate​ ​vicinity,​ ​this​ ​property's attractiveness​ ​to​ ​prospective​ ​tenants​ ​has​ ​waned,​ ​exacerbated​ ​by​ ​the​ ​availability​ ​of​ ​additional office​ ​space​ ​in​ ​recent​ ​years. The​ ​REIT​ ​manager​ ​is​ ​in​ ​the​ ​midst​ ​of​ ​negotiations​ ​with​ ​prospective​ ​tenants​ ​to​ ​take​ ​up​ ​the​ ​vacant space​ ​in​ ​the​ ​Properties,​ ​which​ ​may​ ​hasten​ ​the​ ​return​ ​to​ ​earlier​ ​NPI​ ​levels​ ​if​ ​they​ ​are​ ​signed​ ​up earlier​ ​than​ ​expected.​ ​The​ ​resultant​ ​assessed​ ​stressed​ ​capital​ ​value​ ​will​ ​still​ ​be​ ​supportive​ ​of the​ ​transaction,​ ​at​ ​a​ ​29%​ ​discount​ ​to​ ​the​ ​Properties'​ ​latest​ ​market​ ​value​ ​of​ ​RM410.4​ ​million. The​ ​ratings​ ​are​ ​also​ ​underpinned​ ​by​ ​structural​ ​features​ ​that​ ​enhance​ ​the​ ​liquidity​ ​and​ ​security​ ​of the​ ​transactions,​ ​e.g.​ ​minimum​ ​finance​ ​service​ ​coverage​ ​ratio​ ​(FSCR)​ ​requirements​ ​at​ ​the​ ​levels of​ ​both​ ​the​ ​Issuer​ ​and​ ​the​ ​sponsor.​ ​These​ ​act​ ​as​ ​trigger​ ​mechanisms​ ​to​ ​accelerate​ ​recovery​ ​via proceeds​ ​from​ ​the​ ​disposal​ ​of​ ​the​ ​underlying​ ​portfolio.​ ​We​ ​note​ ​that​ ​the​ ​respective​ ​FSCRs​ ​of​ ​the Issuer​ ​vis-a-vis​ ​the​ ​Second​ ​Sukuk​ ​and​ ​Axis​ ​REIT​ ​remained​ ​healthy​ ​at​ ​4.36​ ​times​ ​and​ ​5.67​ ​times as​ ​at​ ​end-December​ ​2016,​ ​i.e.​ ​above​ ​the​ ​covenanted​ ​1.50​ ​times. ARSB​ ​is​ ​a​ ​special-purpose​ ​vehicle​ ​set​ ​up​ ​by​ ​Axis​ ​REIT​ ​as​ ​a​ ​funding​ ​conduit​ ​for​ ​its​ ​Perpetual Islamic​ ​MTN​ ​Programme​ ​of​ ​up​ ​to​ ​RM3​ ​billion.​ ​The​ ​Second​ ​Sukuk​ ​had​ ​been​ ​issued​ ​via​ ​a commercial​ ​real​ ​estate-backed​ ​transaction​ ​involving​ ​the​ ​Properties. Organisation​ ​Name: News​ ​Type: RAM​ ​Rating​ ​Services​ ​Berhad RATING​ ​ANNOUNCEMENT Source: BNM​ ​Announcements Media​ ​Contact Padthma​ ​Subbiah (603)​ ​7628​ ​1162 padthma@ram.com.my
  3. IB ​ ​Press​ ​Release​ ​Service Published​ ​on:​​ ​IslamicBanker.com​ ​Publications:​ ​https://www.islamicmarkets.com/publications Disclaimer: The​ ​credit​ ​rating​ ​is​ ​not​ ​a​ ​recommendation​ ​to​ ​purchase,​ ​sell​ ​or​ ​hold​ ​a security,​ ​inasmuch​ ​as​ ​it​ ​does​ ​not​ ​comment​ ​on​ ​the​ ​security's​ ​market price​ ​or​ ​its​ ​suitability​ ​for​ ​a​ ​particular​ ​investor,​ ​nor​ ​does​ ​it​ ​involve​ ​any audit​ ​by​ ​RAM​ ​Ratings.​ ​The​ ​credit​ ​rating​ ​also​ ​does​ ​not​ ​reflect​ ​the legality​ ​and​ ​enforceability​ ​of​ ​financial​ ​obligations. RAM​ ​Ratings​ ​receives​ ​compensation​ ​for​ ​its​ ​rating​ ​services,​ ​normally paid​ ​by​ ​the​ ​issuers​ ​of​ ​such​ ​securities​ ​or​ ​the​ ​rated​ ​entity,​ ​and sometimes​ ​third​ ​parties​ ​participating​ ​in​ ​marketing​ ​the​ ​securities, insurers,​ ​guarantors,​ ​other​ ​obligors,​ ​underwriters,​ ​etc.​ ​The​ ​receipt​ ​of this​ ​compensation​ ​has​ ​no​ ​influence​ ​on​ ​RAM​ ​Ratings'​ ​credit​ ​opinions or​ ​other​ ​analytical​ ​processes.​ ​In​ ​all​ ​instances,​ ​RAM​ ​Ratings​ ​is committed​ ​to​ ​preserving​ ​the​ ​objectivity,​ ​integrity​ ​and​ ​independence​ ​of its​ ​ratings.​ ​Rating​ ​fees​ ​are​ ​communicated​ ​to​ ​clients​ ​prior​ ​to​ ​the issuance​ ​of​ ​rating​ ​opinions.​ ​While​ ​RAM​ ​Ratings​ ​reserves​ ​the​ ​right​ ​to disseminate​ ​the​ ​ratings,​ ​it​ ​receives​ ​no​ ​payment​ ​for​ ​doing​ ​so,​ ​except for​ ​subscriptions​ ​to​ ​its​ ​publications. Similarly,​ ​the​ ​disclaimers​ ​above​ ​also​ ​apply​ ​to​ ​RAM​ ​Ratings' credit-related​ ​analysis​ ​and​ ​commentaries,​ ​where​ ​relevant.