This transaction represents the third issue rated by MARC, involving the securitisation of oil palm plantation assets. Originated by Teck Guan Holdings Sdn Bhd (TGHSB or Originator), the plantation assets are owned by its subsidiaries namely Andum Sdn Bhd (ASB), Happy Valley Plantation Sdn Bhd (HVP) and Teck Guan Plantations Sdn Bhd (TGP) (collectively known as the Sellers/ Lessees). Dura Palms Sdn Bhd (Dura Palms) is the Issuer and MARC has assigned ratings of AAAIS, AAIS and AIS to its RM100.0 million Series A, RM90.0 million Series B and RM10.0 million Series C Sukuk Ijarah. The remaining RM83.87 million Sukuks issued by Dura Palms is a non-rated piece.

The ratings assigned to Series A and B Sukuks reflect the quality of the plantation properties; the structural enhancements which include serial amortisation of Series A and B Sukuks semi-annually, commencing on the first anniversary from the issuance date resulting in declining loan-to-values (LTVs) over the tenure of the transaction; and, the irrevocable undertaking provided by TGHSB to provide sufficient funds to ensure the lessees meet their periodic lease payments. The rating assigned to Series C Sukuk mirrors the credit rating of TGHSB.

The Issuer, a special purpose and wholly owned entity of TGHSB, shall undertake to purchase the beneficial interests of certain identified plantation lands from the Sellers via a Master Sale and Purchase Agreement (SPA). The Issuer will immediately lease the plantation assets to the Sellers under Ijarah Agreement (IA); allowing the Sellers to continue running the operation of the plantations. Under the IA, the Lessees are required to make monthly rentals to the Issuer, earmarked for the repayment of secondary and primary of Series A and B Sukuks. Series C Sukuk is structured as single bullet redemption upon maturity payable only upon full redemption of Series A and B Sukuks.

During the tenure of the transaction (up to year seven), semi-annual lease payments from the lessees will form the source of repayment for the primary notes for Series A and B Sukuks and secondary notes of Series A, B and C Sukuks. Approximately 50% and 47% of Series A and B Sukuks will be redeemed using the periodic lease payments while the remaining portion of Series A and B will be funded by proceeds from sale of plantations properties under an asset put option. Due to the serial amortisation of the Sukuks on a half-yearly basis commencing from the end of the first year from issuance, actual LTVs for Class A and B Sukuks at maturity is expected to be at 20.9% and 40.8% respectively.

The interest of the Sukuk holders is protected as the Issuer shall convey its beneficial interest in the securitised plantation assets to the Trustee for the benefit of the Sukuk holders. In addition, the trustee has the power of attorney to sell the plantation assets to third parties in the event the sellers/lessees are unable to perfect their obligations under the asset put option.

The Sukuk holders will benefit from additional credit protection with the undertaking provided by TGHSB in providing liquidity support to the lessees and the Issuer in the event the Lessees are unable to fulfil their obligation under the Sukuk.

The plantation properties securitised comprising a total mature area of 6,479 hectares are all located within the district of Sandakan and Tawau, Sabah. As at April 2006, a large portion of the securitised estates consist mainly of prime mature palms (between 8 to 15 years) occupying 81% of the total planted area. In tandem with the increasing maturity profile of its plantations, the Group’s average FFB yield has continuously improved, consistently exceeding the industry’s (Malaysia’s) average yield since 2002. Going forward, the overall yield of the plantations to be securitised is expected to be commendable in view of their maturity profile and historical yield.

The proposed Sukuk will have an expected and final legal maturity of 7 and 8.5 years respectively. The tail period of 1.5 years is incorporated to facilitate the sale of the plantation assets in case of the occurrence of certain trigger events and/or defaults. Refinancing risk is partly mitigated through serial redemptions of the Series A and B Sukuks commencing first anniversary of issuance and semi-annually thereafter.

Incorporated in October 1978, TGHSB is an investment holding company with diverse operating activities such as oil palm and cocoa plantation, oil palm milling, manufacturing, trading and others. With over 60 subsidiary companies, TGHSB has an established operating track record in East Malaysia. Operating profit margins of the Group averaged 8.3% for the past five financial years (2001-2005) and shareholders’ funds were approximately RM379.0 million as at January 2005. TGHSB reported a profit before taxation of RM83.8 million on RM828.8 million of revenue as at January 2005. MARC has assigned a rating of A (A flat) to TGHSB.