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

Published on 21 March 2014

RAM Ratings has reaffirmed the enhanced rating of BJ Corporation Sdn Bhd’s (BJ Corp) 10-year Bank-Guaranteed MTN Programme of up to RM255.0 million (2012/2022) (the Programme) at AAA(bg)/Stable. The enhanced rating reflects an 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) via its investment-holding subsidiary, Asian Plantations (Sarawak) Sdn Bhd (APS). APL is a plantation group, listed on the Alternative Investment Market of the London Stock Exchange in November 2009. The Group’s oil palm plantation assets are spread across 5 estates, all located in Sarawak, and held under different operating subsidiaries.

BJ Corp’s 4,795 hectare (ha) plantation was the first estate acquired by the Group and the first to complete planting works. In 10M FY Dec 2013, BJ Corp had a mature area of 1,759 ha, making up 40.3% of APL’s total mature area, and contributed 28.6% 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.

As at end-June 2013, APL’s debt increased to USD135.11 million from USD123.47 million previously, while its shareholders’ funds had eroded 15% to USD48.46 million due to losses, which resulted in a higher gearing ratio of 2.79 times. Meanwhile, due to the Group’s largely immature estates and an increasing production cost, its funds from operations and operating cashflow have remained in deficit since its listing in 2009. To meet its operational and debt-servicing needs over the next 2 years, APL would need to raise at least USD30 million of equity, according to RAM’s estimation.

The Group lacks an established operating track record. As planting only began in 1Q 2009, 65% of its trees are in the immature category (0-3 years), and hence, production remains low. Furthermore, APL incurs hefty costs. Due to its estates’ challenging and undulating terrains, more workers are required for harvesting and maintenance. This, coupled with the non-capitalisation of assets as trees mature is expected to result in an inherently high and volatile production cost, which will stabilise only as more trees move into the mature category.

Meanwhile, APL’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 growing population.

Media contact

Chinthamani Thanneermalai

(603) 7628 1013

chinthamani@ram.com.my