RAM Ratings has reaffirmed the AAA(s)/stable rating of Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang’s (LKPP or the Group) RM300 million Bai’ Bithaman Ajil Islamic Debt Securities (2005/2015) (BaIDS).

Published on 30 December 2013

RAM Ratings has reaffirmed the AAA(s)/stable rating of Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang’s (LKPP or the Group) RM300 million Bai’ Bithaman Ajil Islamic Debt Securities (2005/2015) (BaIDS). 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 is largely involved in the cultivation of oil-palm, which accounts for about 95% of its revenue. LKPP had 41,848 hectares of land planted with oil palm as at end-July 2013. Under its 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 implementing programmes for the development of entrepreneurs in rural areas.
Excluding the State’s guarantee, LKPP’s credit fundamentals are supported by its superior balance sheet and very strong liquidity position as well as its favourable tree-maturity profile. Some 72% of its palms fall within the high-yielding “prime” and “young” brackets. With its replanting programme, the Group’s tree-maturity profile is envisaged to continue to support its fresh fruit bunch yields. LKPP reported a net-cash position as at end-December 2012 while its operating cash flow debt coverage ratio came up to a healthy 0.26 times.
These factors are, however, moderated by LKPP’s higher cost structure than that of its peers and is a small player in the palm oil industry. The Group also has to balance its social obligations with its commercial agenda, in fostering the development of rural settlers. In addition, LKPP’s financials are vulnerable to the cyclicality of the industry, characterised by volatile crude palm oil prices.

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