RAM Ratings reaffirms AAA(fg) rating of BCity’s debt issue

Published on 28 September 2012

RAM Ratings has reaffirmed the enhanced rating of BerjayaCity Sdn Bhd’s (“BCity” or the “Company”) RM150 million Danajamin-Guaranteed Medium Term Notes Programme (“MTN”) at AAA(fg) with a stable outlook. The enhanced rating reflects an irrevocable and unconditional financial guarantee extended by Danajamin Nasional Berhad (“Danajamin”) (rated AAA/P1 by RAM Ratings). The guarantee enhances the credit profile of the facility beyond BCity’s stand-alone credit strength. Under this structure, all risks associated with the MTN are expected to be absorbed by Danajamin.

BCity’s core business is the cultivation of oil palm. The Company’s ultimate parent is Berjaya Corporation Berhad (“BCorp”), a conglomerate with interests in a vast array of businesses.

BCity is a small player within the oil-palm plantation industry, with a planted area of 4,839 hectares (“ha”) as at end-April 2012. The Company has a track record of healthy fresh fruit bunch (“FFB”) yields of above 20 metric tonnes (“MT”) per mature ha, slightly higher than the industry average. However, its production costs are high compared to rated peers due to higher harvesting and labour costs arising from the hilly terrains of its estates as well as its large proportion of older and taller palms (about 50% of total planted area). Lacking in economies of scale, the Company’s smaller planted area has also contributed to its higher production costs structure. In a bid to reduce costs, the Company has embarked on a replanting exercise to replace older palms with better seedlings.

As at end-FY Apr 2012, BCity’s gearing ratio improved, albeit remained weak at 1.54 times (end-FY Apr 2011: 1.71 times) due to healthier profit accumulation. Weaker crop production during the year depressed its revenue and funds from operations (“FFO”); FFO debt coverage ratio slipped slightly to 0.10 times as at end-FY Apr 2012 from 0.12 times a year earlier. Over the next 3 years, the Company’s credit metrics are envisaged to remain weak, with projected gearing levels of around 1.3 times to 1.5 times, and operating cashflow debt coverage of between 0.06 times and 0.09 times.

“BCity derives financial flexibility from the support of its ultimate parent, BCorp, which has previously extended financial backing to the Company and has also provided a corporate guarantee to Danajamin for the MTN”, noted Thong Mun Wai, RAM Ratings’ Head of Real Estate and Construction Ratings. As at end-April 2012, advances from BCorp to the Company totalled RM178 million. Hence, we envisage that BCorp will continue to extend financial support to BCity should the need arise.

Media contact

Anne Yap

(603) 7628 1038

anne@ram.com.my