RAM Ratings reaffirms AAA rating of Midas Plantation’s Class A Sukuk Ijarah, withdraws ratings on Class B Sukuk Ijarah and CP/MTN

Published on 09 July 2012

RAM Ratings has reaffirmed the AAA rating of the Class A Sukuk Ijarah issued by Midas Plantation Sdn Bhd (“Midas”), with a stable outlook. The stable outlook reflects our expectation that RH Plantation Sdn Bhd (“RH Plantation”) and Timrest Sdn Bhd (“Timrest”) – collectively known as “the Lessees” – will be able to meet their scheduled lease payments and, in turn, the payment obligations under the Sukuk Ijarah.

Midas is a special-purpose vehicle incorporated as the financing conduit for an Islamic sale-and-leaseback transaction backed by 2 oil-palm plantations and 1 palm-oil mill (collectively known as “the Assets”).  The Lessees, subsidiaries of Rimbunan Sawit Berhad, had sold their beneficial interests in the Assets to Midas. In turn, Midas had leased the Assets back to the respective Lessees; the financial obligations under the Sukuk Ijarah are met via the semi-annual lease payments from the Lessees.

On 27 June 2012, RAM Ratings received confirmation that Midas had redeemed its remaining RM10 million Class B Sukuk Ijarah and RM20 million Class A Sukuk Ijarah. Following the redemptions, the outstanding amount under the Sukuk Ijarah now stands at RM23 million. Meanwhile, the RM50 million Sukuk Ijarah Commercial Paper/Medium-Term Notes Programme (“CP/MTN”) has also expired. There was no outstanding amount under the CP/MTN at the point of maturity. Correspondingly, RAM Ratings has withdrawn the AA1 rating of the Class B Sukuk Ijarah and also the AAA(s)/stable/P1(s) ratings of the CP/MTN; we no longer have any rating obligation on these debt securities.

Pursuant to the revision of our valuation approach for oil-palm plantations-backed transactions, our sustainable-cashflow assumption for the plantations has been revised from RM13.9 million to RM15.0 million. However, the upward adjustment to the plantations’ sustainable cashflow has been moderated by adjustments to our assumptions on the Lessees’ production yields and costs, to better reflect the current and expected performance of the plantations. The cashflow stemming from the plantations for the review period remain adequate against our adjusted sustainable-cashflow assumption of RM15.0 million per annum. The resultant adjusted values of the Assets sum up to RM143.7 million (from the previous RM135.0 million), corresponding to a lower loan-to-value ratio of 16.01% for the Class A Sukuk Ijarah and a higher debt service coverage ratio of 6.53 times.

Overall, Midas performed commendably in fiscal 2011; Timrest and RH Plantation recorded respective average yields on fresh fruit bunches (“FFB”) of 17.0 MT per hectare (“MT/ha”) and 12.4 MT/ha (2010: 15.5 MT/ha and 11.9 MT/ha). Meanwhile, the oil-extraction and kernel-extraction rates of the palm-oil mill in RH Plantation’s estate remained healthy at 20.7% and 4.6%, respectively - above Sarawak’s averages. These are underpinned by stringent grading of FFB purchased, resulting in healthy output of palm oil and palm kernels. All in all, the Lessees’ financial performance improved year-on-year in fiscal 2011, premised on more prolific production and stronger prices of crude palm oil (“CPO”) and FFB (RM3,195 per MT and RM632 per MT compared to RM2,472 per MT and RM498 per MT in fiscal 2010). RAM Ratings expects the Lessees to continue delivering a healthy financial performance this year, on the back of resilient FFB and CPO prices. We note that the Lessees have to date been able to promptly and fully meet the payments on their scheduled lease obligations, thus enabling Midas to fulfil its commitments. For a detailed explanation on our adjusted-valuation approach for oil-palm plantations-backed transactions, please refer to Criteria Update: CRE-backed Transactions Involving Oil-Palm Plantations, published on 12 April 2012.

Media contact

Lee Sook Wei

(603) 7628 1017

sookwei@ram.com.my