RAM Ratings reaffirms ratings of Golden Crop's Sukuk Al-Ijarah, with stable outlook

Published on 29 December 2011
RAM Ratings has reaffirmed the respective AAA, AAA, AA2, AA3 and A1 ratings of Golden Crop Returns Berhad’s (“Golden Crop” or “the Issuer”) Tranche 3 Series 1, 2, 3, 4 and 5 Sukuk Al-Ijarah (“Sukuk”), with a stable outlook. The reaffirmation is premised on the performance of Golden Crops’ plantations, which has fallen within our expectations. This in turn supports our assessed valuation and maintains the loan-to-value (“LTV”) ratios as well as debt service coverage ratios (“DSCRs”) at levels that commensurate with their respective ratings.

Golden Crop is a bankruptcy-remote, special-purpose company that had been set up as the financing vehicle for the sale-and-leaseback transaction involving 17 plantations and 5 mills under the purview of entities within the Boustead Holdings Berhad Group (“Boustead”). Following the redemption of the Tranche 1 Sukuk and Tranche 2 Sukuk in November 2008 and November 2010, respectively, the remaining 13 estates and 4 mills (collectively, the “Plantation Assets”) within the transaction continue to provide credit support for the RM242 million of outstanding sukuk.
The transaction is further underpinned by the senior-subordinated structure of the Sukuk and its structural features that support the ratings. These are, however, moderated by the vulnerability of the Plantation Assets’ performance to the volatile price movements of crude palm oil (“CPO”). “Nevertheless, the plantation companies (“the Lessees”) have been able to fully and promptly meet the payments on their scheduled lease obligations,” notes Siew Suet Ming, RAM Ratings’ Head of Structured Finance Ratings.

In FYE 31 December 2010 (“FY Dec 2010”), Golden Crop’s yields on fresh fruit bunches (“FFB”) decreased slightly to 18.2 metric tonnes per hectare (“MT/ha”) (FY Dec 2009: 18.8 MT/ha) – a result of heavier rainfall. There was also a shortage of skilled labourers to harvest the aged, taller trees of its estates in Sabah. In 1H FY Dec 2011, Golden Crop achieved an overall FFB yield of 9.1 MT/ha, marginally better than the industry’s 9.0 MT/ha. Going forward, we expect Golden Crop’s estates to generate FFB yields of around 18 to 19 MT/ha per annum.

In FY Dec 2010, Golden Crop generated RM137.9 million of cashflow (FY Dec 2009: RM119.1 million), driven by a higher average selling price for FFB of RM460 per MT (2009: RM433 per MT). In 1H FY Dec 2011, the estates generated RM96.0 million of cashflow (1H FY Dec 2010: RM90.2 million) while the average FFB selling price exceeded RM700 per MT. We also note that cheaper fertilisers reduced Golden Crop’s average production cost to RM3,725 per hectare in fiscal 2010 (FY Dec 2009: RM3,984). Nonetheless, plantation costs are expected to rise over the medium term, pushed up by labour issues and more costly fertilisers. This is, however, partially addressed by Boustead’s initiatives of enhancing labour productivity via mechanisation and replanting with higher-yielding trees.

Media contact
Woon Tien Ern
(603) 7628 1040
tienern@ram.com.my