MARC AFFIRMS ITS AAAIS, AAIS, AND AIS RATINGS ON DURA PALMS SDN BHD'S SUKUK IJARAH SERIES

Mar 6, 2012 -
MARC has affirmed the ratings of Dura Palms Sdn Bhd’s (Dura Palms) RM100 million Series A, RM90 million Series B and RM10 million Series C Sukuk Ijarah at AAAIS, AAIS and AIS respectively. The ratings carry a stable outlook. The rating action affects RM134.0 million of total outstanding sukuk comprising RM64.0 million Series A sukuk, RM60.0 million Series B sukuk and RM10.0 million Series C sukuk.

Dura Palms is a special purpose company and wholly-owned subsidiary of Teck Guan Holdings Sdn Bhd (Teck Guan) created for the purpose of issuing the Sukuk Ijarah to facilitate the sale and leaseback of 6,861 hectares of oil palm plantation estates (the securitised estates) owned by Teck Guan’s subsidiaries, Andum Sdn Bhd, Happy Valley Plantation Sdn Bhd and Teck Guan Plantations Sdn Bhd (the sellers/lessees).

The affirmed ratings reflect the strong performance of the securitised estates, satisfactory loan-to-value (LTV) and debt-service coverage ratios (DSCR) consistent with the respective ratings and credit protection features within the transaction’s structure. Under the terms of the transaction, Dura Palms possesses a put option, exercisable upon expected maturity of the Sukuk Ijarah, to sell the securitised estates to the sellers/lessees and use the proceeds thereof to redeem the outstanding Sukuk Ijarah. Should this fail, the assets can be sold to third parties to repay the remaining Sukuk Ijarah before the legal maturity date. In addition, the Sukuk Ijarah benefits from an irrevocable undertaking by Teck Guan to provide liquidity support in the event that Dura Palms or the sellers/lessees are unable to fulfil their obligations with respect to the Sukuk Ijarah.
The securitised estates posted a total fresh fruit bunches (FFB) yield of 139,493 MT for its financial year ended January 31, 2011 (FY2011) compared to 162,007 MT in FY2009.

Production over the reviewed period was 13.9% lower than the previous period due to a combination of replanting of mature palm trees, unfavourable weather and biological tree stress. Nonetheless, the estates continued to show average yield per hectare of planted area above industry benchmarks at 22.4 MT/ha (FY2010: 25.0 MT/ha). Subsequently, in the nine-month period ended October 31, 2011 (9MFY2012), the securitised estates’ average yields rose to 18.67 (FY2011: 15.1 MT/ha), which were also well above the industry average yield of 15.28 MT/ha.

Meanwhile, the net operating income (NOI) results of the securitised estates have stayed above MARC’s assumed stabilised level (RM28.3 million), based on above-average yield performance and relatively strong average FFB prices (RM550/MT in both FY2011 and FY2010). For the nine-month period ended October 31 2011 (9MFY2012) and FY2011, the estates recorded NOI figures of RM54.4 million and RM35.1 million respectively. Scheduled amortisation has caused loan-to-value (LTV) ratios to improve to 24.8% and 48.1% for the Series A and B sukuk respectively. MARC has maintained its discounted cash flow valuation of the securitised estates unchanged at RM258.0 million, taking a forward-looking view of the likely range of collateral performance over the intermediate term.

The stable outlook for the Sukuk Ijarah reflects MARC’s opinion that the securitised estates will continue to perform within expectations. MARC believes that refinancing risk at the final maturity of the Sukuk Ijarah is largely mitigated by the value and saleability of the securitised estates which will support redemption of the Sukuk Ijarah by way of disposal of the securitised estates.

Contacts:
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my;
Ruben Khoo, +603-2082 2265/ rubenkhoo@marc.com.my.