MARC has affirmed the long term ratings of ABS Plantation Assets Berhad’s (ABSP) RM50.0 million Class A and RM45.0 million Class B Bai Bithaman Ajil debt securities (Notes) at AAAID and AAID respectively. The ratings reflect the economics of underlying plantation assets; and the structural features of the sale and leaseback transaction which include low loan-to-value (LTV) ratios at maturity for both classes of Notes owing, and credit enhancement provided by RM80 million of unrated subordinated debt which is payable only after full redemption of the Notes. Of the RM95.0 million Class A and Class B notes, 53.9% or RM51.2 million will be redeemed by the periodic lease payments collected throughout the tenure of the transaction, resulting in increasing collateral protection as the transaction progresses towards maturity. Taking into consideration the projected reserve account balance of RM11.6 million as at end of year 10, the net amount of notes which needs to be redeemed from the sale of plantation properties will be RM32.3 million or 34.0% of the total issue size. An event that can lead to the revision of MARC’s ratings on ABSP’s notes is deterioration in the performance of the securitized estates from the initial projections to the extent that it warrants a review of the valuation of the plantation assets.

The transaction had earlier involved the sale of plantation properties to a bankruptcy remote special purpose vehicle, ABSP, funded by the Notes and subordinated debt, and subsequent leaseback of the property by the sellers for the benefit of the noteholders. The sale of plantation properties under the transaction has been structured as true-sale for legal purposes with the rights in, title to and interest in the plantation properties being transferred to ABSP. The leases extend past the expected and final legal maturity of the rated notes. Periodic lease payments are the ultimate source of debt service for the rated notes, and provide the means to amortize 70% and 36% of the nominal value of Class A and Class B notes during the tenure of the transaction.

Multi Vest Resources Berhad (Multi Vest), the holding company of the sellers, reported an unaudited after tax loss of RM4.67 million for the financial year ended June 30, 2006 (2005: -RM3.98 million). Multi Vest’s continuing weak operating earnings profile is a point of concern notwithstanding favourable oil palm plantation industry conditions which provide a degree of near-term downside financial risk protection. Although domestic plantation operations remain profitable, implying adequate capacity to service lease obligations, MARC is concerned that there may be implications from financial challenges at the parent for its subsidiaries, the lessees.

The securitised properties comprise approximately 8,893.42 acres of plantation estate land, mill and other identified machineries. As at August 2006, matured oil palm occupied 97.0% of total planted area, the balance comprising immature areas. Trees in their prime (between 8 to 15 years) constituted 26.8% of total plantation while over-aged palms (of over 25 years) stood at 3.9%. The estate’s FFB yield has been consistently above industry average, ranging from 20.0 MT/ha to 23.0 MT/ha per annum in the last five years. In addition, the oil extraction rate (OER) remains comparable to industry average at 19.0%.