Kwantas SPV Sdn Bhd - 2007

MARC has affirmed ratings of Kwantas SPV Sdn Bhd’s (Kwantas SPV) RM80.0 million Class A, RM15.0 million Class B and RM25.0 million Class C asset-backed Sukuk Ijarah at AAAID , AAID and A+ID respectively and has also affirmed the ratings of the RM35.0 million Class C credit-linked Sukuk Ijarah and RM65.0 million corporate guarantee-backed Murabahah CP/MTN which mirror the corporate rating of Kwantas Corporation Berhad (KCB) at MARC-1ID /A+ID. The affirmed ratings of the asset-backed Sukuk Ijarah reflects the quality of the plantation properties; the satisfactory performance of the plantation estates; and relatively low actual loan-to-value ratios (LTVs) for Class A, B and C of 36.7%, 43.5% and 52.7% respectively, as at July 2007. Additionally, KCB has provided an irrevocable undertaking to ensure that the lessees meet their periodic lease payments.  Ijarah payments mirror Kwantas SPV’s obligations in relation to Sukuk and Return payments under the Sukuk Ijarah issuance. The entire Sukuk Ijarah is structured to fully amortize by the end of Year 8, eliminating back-end refinancing risk. KCB has maintained its corporate credit ratings of MARC-1/A+ since issuance.

Kwantas SPV, a special purpose company and a wholly owned subsidiary of KCB, was incorporated for the sole purpose of owning and leasing plantation properties for the benefit of the Islamic securities investors as well as issuing up to RM65.0 million Murabahah Commercial Papers/Medium Term Notes Programme (CP/MTN) to part-finance working capital requirements of KCB group.  At transaction close, Kwantas SPV purchased from subsidiaries of KCB (sellers/ lessees) identified plantation estates with proceeds raised from the issuance of RM155.0 million Sukuk Ijarah. Subsequent to the purchase, Kwantas SPV entered into separate Ijarah agreements with the sellers to lease back the securitized assets.  The Ijarah agreements cover a period of nine years with lease payments that match the obligations of Kwantas SPV under the Sukuk Ijarah. The ‘sale’ of the plantation assets involves the transfer of beneficial interests in the plantation estates owned by the sellers.  Interests of the Sukuk investors are further protected with the first fixed legal charge over the plantation properties.

The securitised plantation properties comprising total mature area of 7,470.04 ha, of which about 75.8% is planted with prime mature palms, are all located within the district of Lahad Datu, Sabah. The 26.4 MT/ha average Fresh Fruit Bunch (FFB) yield of the securitized estates in 2006 exceeded Sabah’s and Malaysia’s average of 23.1 MT/ha and 19.6 MT/ha respectively. The average FFB yield of the securitized estates at 26.4 MT/ha was, however, lower than the projected 27.5 MT/ha. The effect of lower FFB production was, nonetheless, offset by a higher average FFB price of RM263 per MT as compared to initial projections of RM221 per MT. This enabled the securitized plantation estates to register a net operating income (NOI) of RM25.7 million, which is higher than MARC’s assumed sustainable NOI of RM24.0 million. Barring unfavourable weather conditions, FFB yield sustainability of the securitized estates throughout the tenure of the Sukuk will be supported by its high mature-to-planted area ratio.

KCB Group’s FFB production in FY2006 decreased by 0.7% to 308,304 MT (FY2005: 310,528 MT) due to unfavourable weather conditions. Its oil extraction rate (OER) for CPO of 20.9% was marginally lower than Sabah’s average at 21.1% but slightly higher than the Malaysia’s average at 20.0% in FY2006. In light of the estate’s high mature-to-planted area ratio, well laid infrastructure and accessibility to other plantations, FFB yield and OER of KCB’s estates are likely to be sustained going forward. KCB group derives more than 85% of its revenue from refined oil products with refined, bleached, deodorised olein (RBDOL) contributing on average 42% of total revenue from FY 2002 to FY 2006.  The Group registered a profit before tax of RM16.2 million and revenue of RM1,122 million in FY2006. The group’s shareholders’ funds stood at RM487.6 million as at 30 June 2006.

With serial redemption of the Sukuk Ijarah, actual LTV for Class C has lowered from 55.0% at closing to 52.7% as at July 2007.