RAM Ratings reaffirms AAA(s) rating of LKPP's Islamic debt securities

Published on 30 December 2011

RAM Ratings has reaffirmed the AAA(s) rating of Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang’s (“LKPP” or “the Group”) RM300 million Bai’ Bithaman Ajil Islamic Debt Securities (2005/2015) (“BaIDS”); the long-term rating has a stable outlook. The enhanced rating reflects the unconditional and irrevocable guarantee extended by the State Government of Pahang (“the State”), with approval from the Federal Government of Malaysia. The guarantee enhances the credit profile of the BaIDS beyond LKPP’s inherent or stand-alone credit risk.

LKPP is a state-owned entity; its operations can be broadly divided into 2 segments, social and commercial. Under the commercial division, its main focus is on the development of the agricultural sector in Pahang. The Group is mainly involved in oil-palm plantations, accounting for 96% of its revenue. The Group held 42,438 hectares of oil-palm plantations as at end-June 2011. Under the social division, LKPP is responsible for improving the living standards of the rural community by providing good infrastructure for the development of agricultural activities, and the implementation of various programmes for the development of entrepreneurs in rural areas.

“Excluding the guarantee, LKPP’s fundamentals are supported by its healthy tree-maturity profile which underpins the production of fresh fruit bunches (approximately 68% of its palm trees are in the high-yielding ”prime” and ”young” brackets), strong balance sheet position and healthy debt protection measures,” notes Shahina Azura Halip, RAM Ratings’ Head of Real Estate and Construction Ratings. The Group reported a net-cash position as at end-December 2010 while its funds from operations debt coverage ratio came up to 1.01 times.

On the other hand, LKPP’s credit fundamentals are moderated by its need to balance its social obligations with its commercial agenda, by fostering the development of rural settlers. The Group’s cost structure also remains rather steep compared to its peers. In addition, LKPP’s financials hinge on the performance of crude palm oil, which is characterised by volatile price swings as a result of industry cyclicality and speculative elements.

Media contact
Yong Keck Phin
(603) 7628 1183
keckphin@ram.com.my