RAM Ratings upgrades KLK's ratings to AA1/P1

Published on 22 August 2011
RAM Ratings has assigned respective preliminary long- and short-term ratings of AA1 and P1 to Kuala Lumpur Kepong Berhad’s (KLK or the Group) proposed RM300 million Sukuk Ijarah Commercial Paper/Medium-Term Notes Programme (2011/2016); the long-term rating has a stable outlook.



At the same time, the long-term rating of the Group’s existing RM500 million Sukuk Ijarah Commercial Paper/Medium-Term Notes Programme (2007/2012) has been upgraded from AA2 to AA1 while the rating outlook has been revised from positive to stable. Meanwhile, the short-term rating of the debt facility has been reaffirmed at P1.

“The upgrade for the long-term rating is premised on KLK’s solid operating and financial track records over the past 5 years. The Group’s planted oil-palm hectarage has expanded almost 50% during this period. Its healthy tree-maturity profile and lean cost structure have further boosted KLK’s cashflow and earnings.

In the meantime, the Group has more than doubled its oleochemical production capacity via domestic expansion and overseas acquisitions; KLK is now one of the largest oleochemical producers in Europe. These achievements are supported by a conservative balance sheet,” notes Shahina Azura Halip, RAM Ratings’ Head of Real Estate and Construction Ratings. “Going forward, we expect KLK to maintain its commendable operating and financial profiles. Its gross gearing ratio is expected to be kept below 0.3 times, supported by a strong funds-from-operations debt cover of between 0.56 and 1.93 times over the next 5 years,” she adds.

KLK is one of the largest established plantation players, with more than 250,000 hectares of plantation land in Malaysia and Indonesia. Its established track record in the plantation sector is reflected by its commendable operating efficiency and lean cost structure; KLK is one of the lowest-cost producers in the industry. Moving ahead, KLK’s performance will remain supported by continued demand for crude palm oil from increasing food consumption and the world’s constantly expanding population.

On the other hand, KLK’s ratings are moderated by its ambitious expansion into oleochemicals; this industry is vulnerable to high feedstock prices and overcapacity, particularly in basic oleochemicals. In this regard, RAM Ratings believes that KLK’s management will take a measured approach and maintain its robust balance sheet. The industry is characterized by volatile CPO prices which largely dictate the bottom-line of oil palm-based companies, like KLK. Being a commodity, CPO prices are subject to many factors that are beyond the planters’ control. Other moderating factors include the inherent cyclicality of the property and retail sectors and operations risk from foreign ventures.

Media contact
Chan Yin Huei
(603) 7628 1180
yinhuei@ram.com.my