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”) with a stable outlook

Published on 14 January 2013

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”) with a stable outlook. The enhanced rating reflects an unconditional and irrevocable guarantee extended by the State Government of Pahang (“the State”), with the approval of the Federal Government of Malaysia. The guarantee enhances the credit profile of the BaIDS beyond LKPP’s stand-alone credit strength.
LKPP is a state-owned entity whose operations can be broadly divided into 2 segments, social and commercial. Under the commercial division, its main focus is the development of Pahang’s agricultural sector. The Group has largely been involved in oil-palm plantations, which account for 95% of its revenue. LKPP had 41,967 hectares of land planted with oil palm as at end-July 2012. Under the social division, the Group is responsible for improving the living standards of the rural community by providing requisite infrastructure for the development of agricultural activities, and the implementation of various programmes for the development of entrepreneurs in rural areas.
Excluding the guarantee from the State, LKPP’s credit fundamentals are supported by its favourable tree-maturity profile, which is envisaged to continue to support its fresh fruit bunch yields over the medium term, (approximately 70% of its palms are in the high-yielding ”prime” and ”young” brackets), its superior balance sheet and strong liquidity position. The Group reported a net-cash position as at end-December 2011 while its operating cash flow debt coverage ratio came up to a healthy 2.14 times.
These factors are, however, moderated by LKPP having to balance its social obligations with its commercial agenda, in fostering the development of rural settlers. The Group is also a small player in the palm oil industry, with a higher cost structure than that of its peers. In addition, LKPP’s financials are vulnerable to the cyclicality of the industry, characterised by volatile crude palm oil prices.

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Ben Inn
(603) 7628 1024
ben@ram.com.my