Published on 14 May 2015
RAM Ratings has reaffirmed the enhanced
rating of BJ Corporation Sdn Bhd’s (BJ Corp or the Company) 10-year
Bank-Guaranteed MTN Programme of up to RM255.0 million (2012/2022) (the
Programme) at AAA(bg)/Stable. The enhanced rating reflects the
unconditional and irrevocable guarantee extended by Malayan Banking
Berhad, 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 wholly-owned by Asian Plantations Limited
(APL or the Group). As at end-October 2014, BJ Corp had a mature area of
2,459 ha, which made up 47.7% of APL’s total mature area and
contributed 33% of the Group’s total FFB production. APL, via a
corporate guarantee, undertakes to ensure that BJ Corp meets its
obligations under the bank guarantee facility. Given the undertaking and
BJ Corp’s importance to APL, the corporate credit ratings of the
Company essentially reflect the credit fundamentals of the Group.
The stand-alone credit profile of APL is
characterized by the Group’s limited operating track record as planting
only began in 2009. As at end-October 2014, 68% of its palms were in the
immature category (0-3 years), resulting in a higher production cost.
This is exacerbated by the challenging and undulating terrain of APL’s
estates, which requires more workers for harvesting and maintenance.
Going forward, the Group’s production cost is expected to be high and
volatile, stabilising only as more trees mature. We note that certain
functions such as the procurement of fertilisers and estate maintenance
are collectively and centrally negotiated at shareholder level to
achieve cost savings.
As at end-June 2014, APL’s gearing had increased to
4.70 times as its debt had increased to USD158.2 million from USD151.4
million as at end-December 2013, while its shareholders’ funds had
reduced to USD33.6 million due to losses. Meanwhile, due to the Group’s
largely immature estates, its funds from operations and operating
cashflow have remained in deficit since 2009. Until its operations can
generate sufficient operating cashflow, APL would have to rely on
shareholder support to meet its operational and financial obligations.
APL’s financial performance will remain vulnerable to
the vagaries of the palm oil industry, chief of which is the volatility
of CPO prices. We expect the ample supply of vegetable oils and weak
crude oil prices to keep a lid on CPO prices this year, at an average of
RM2,200-RM2,400/MT.
In November 2014, APL was fully acquired by Felda
Global Ventures Holdings Berhad (FGV), following which it was delisted
from the Alternative Investment Market of the London Stock Exchange. RAM
views this development positively as APL will have the financial
backing of a stronger shareholder to meet its debt obligations. FGV is
the world’s largest producer of CPO as well as the third-largest oil
palm estate operator globally. As at end-December 2014, FGV’s adjusted
gearing stood at 1.09 times while its adjusted operating cashflow (OCF)
debt coverage ratio was 0.16 times for FY Dec 2014. APL is currently
streamlining and integrating its business into FGV.
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