RAM Ratings reaffirms AAA(bg) rating of BJ Corp’s debt issue

Published on 03 April 2013

RAM Ratings has reaffirmed the enhanced long-term rating of BJ Corporation Sdn Bhd’s (“BJ Corp” or “the Company”) 10-year Bank-Guaranteed Medium-Term Notes Programme of up to RM255.0 million (2012/2022) (“the Programme”) at AAA(bg), with a stable outlook. The enhanced rating reflects the unconditional and irrevocable guarantee extended by Malayan Banking Berhad (“the Guarantor”), which is rated AAA/Stable/P1 by RAM. The guarantee enhances the credit profile of the Programme beyond BJ Corp’s stand-alone credit strength.

BJ Corp is principally engaged in the cultivation of oil palm and is indirectly wholly-owned by Asian Plantations Limited (“APL” or “the Group”), a plantation group listed on the Alternative Investment Market of the London Stock Exchange since November 2009. The Group’s oil-palm plantation assets are spread across 4 estates, all located in Sarawak. BJ Corp’s 4,795-hectare plantation is the smallest of the 4.

Excluding the bank guarantee, the Company’s stand-alone credit profile is moderated by the lack of an operating track record. As BJ Corp began planting only in 1Q 2009, its trees are primarily in the immature category (0-3 years). We envisage that the Company’s estate will only be able to display meaningful yields when the trees reach their prime age (8 years). Furthermore, BJ Corp incurs hefty costs a result of the significant expenditure involved in maintenance and harvesting in its estate’s challenging and undulating terrain. Given the young profile of the estate’s trees, high costs and fixed overheads, BJ Corp has been loss-making and its financial position will remain vulnerable over the near to medium term.

BJ Corp’s balance sheet is highly leveraged. The Company’s debt load stood at RM110.55 million as at end-October 2012, against shareholders’ funds of RM773,434. We expect BJ Corp’s debt levels to hover between RM117 million and RM156 million over the next 5 years to fund the maintenance of its young estate until its trees reach their prime age.

We note that BJ Corp is dependent on financial support from APL. As at end-October 2012, advances from the Group amounted to RM14.5 million; these are unsecured, interest-free and have no fixed repayment terms. This firm support is underlined by corporate guarantees to the Guarantor from APL and 2 other intermediate holding companies. The Group has also made known its intention to provide BJ Corp with adequate financial support to meet its obligations as and when they fall due. Nevertheless, APL is loss-making with a weak balance sheet and feeble cashflow generation ability due to its young estates. This is partly due to APL’s strategy to acquire, develop and dispose of oil-palm plantations which entail higher risk.

Meanwhile, BJ Corp’s financial performance will remain vulnerable to the vagaries of the palm oil industry, chief of which is the volatile prices of crude palm oil (“CPO”). Nevertheless, demand for CPO is envisaged to remain supported by increasing food consumption and the world’s expanding population.

Media contact

Chinthamani Thanneermalai

+603 7628 1013

chinthamani@ram.com.my