Tradewinds Plantation Capital Sdn Bhd - 2008 / 2009

MARC has affirmed its AAAIS and AA+IS ratings on Tradewinds Plantation Capital Sdn Bhd’s (TPC) asset-backed RM180.0 million Class A and   RM30.0  million  Class  B   Sukuk  Ijarah,   respectively with a stable outlook. The affirmed ratings of the Class A and Class B Sukuk Ijarah reflect the satisfactory performance of the securitised plantation assets. The stable outlook on the ratings reflect expectations that the estates performance will remain within MARC’s assessed sustainable net operating income (NOI) of RM42.0 million and long term CPO price assumption of RM1,500/MT amidst the continuing volatility of the crude palm oil (CPO) prices. Nevertheless, continued deterioration of CPO prices below our long term price assumption resulting in the actual NOI of the estates falling below MARC’s assessed sustainable NOI may lead to downward pressure on the outlook of the ratings.

Additionally, MARC has affirmed its MARC-1ID and MARC-1ID(bg) / AA+ID(bg) ratings on TPC’s  RM90.0  million  Murabahah Commercial Papers (CPs) and RM100.0 million Bank Guaranteed Murabahah CPs/Medium Term Notes (BG CP/MTN), respectively with a stable outlook. The rating of the CPs reflects the short-term corporate credit rating of Tradewinds Plantation Berhad (Tradewinds) while the ratings of the BG CP/MTN reflect the financial institution rating of the bank guarantor, OCBC Bank (Malaysia) Berhad.

TPC, wholly-owned by Tradewinds, was incorporated for the sole purpose of issuing RM210.0 million Sukuk Ijarah and RM190.0 million Murabahah CP/MTN, the proceeds of which were used to purchase a pool of plantation assets - twelve estates and three palm oil mills - from Tradewinds’ nine subsidiaries (sellers/lessees). The assets were then leased back to the sellers under separate Ijarah agreements with the lease payments forming the source of repayment for the issued securities.  The lease payments match the Sukuk (i.e. principal) and return (i.e. profit) payment obligations under the Sukuk Ijarah while the CPs - the credit-linked class - are serviced by Tradewinds directly.

The Sukuk holders have pro-rata, undivided, beneficial ownership of the trust assets (comprising the Ijarah assets, Sukuk designated accounts, rights under Ijarah agreements, Asset Put Option I, Asset Put Option  II  and undertaking by Tradewinds. Asset Put  Options I and II require the sellers or Tradewinds, respectively, to purchase  the  securitised plantation assets on expected maturity or upon the occurrence of a trigger event  or event of  default at a price equivalent  to the outstanding nominal  value of the Sukuk Ijarah  and TPC’s expenses. At the respective Ijarah maturity dates, the sellers also have the right to exercise Call Option I requiring TPC to sell to them certain identified plantation properties for RM1. In the event the sellers/ Tradewinds are unable to perfect their obligations under the asset put options, the trustee has the power of attorney to sell the plantation properties to third parties.

The plantation estates - located in Johor, Terengganu and Sarawak - have a total planted area of approximately 18,560 ha with over 90 percent of the planted hectarage falling within the matured age bracket. During the period under review – January to September 2008 – FFB production for the securitised estates stood at 219,360 MT, while its NOI from the securitised estates of RM81.1 million was almost double of MARC’s computed stabilised NOI of RM42.0 million. Actual NOI was higher because of favourable CPO prices during the period, which has more than offset the lower than projected FFB production and higher than projected operating expenses. Utilisation rates for the mills in 2007 decreased marginally due to the slightly lower amount of FFB processed with the exception of the Sg. Kachur mill. Nevertheless, the utilisation rate remained above 100% as at September 30, 2008.

MARC’s assumed sustainable NOI of RM42.0 million and discounted cash flow valuation on the securitised assets of RM112.5 million incorporates an assumed long-term price assumption of RM1,500/MT as well as revised cost assumptions and FFB yields in line with the performance of the estates during the review period. Serial redemption commences in the third year, reducing actual loan-to-value ratios for the Class A and B Sukuk Ijarah and providing higher collateral backing over time. The debt service coverage ratios appear reasonably resilient under various stress test scenarios including a lower CPO price of RM1,300 per MT and a 20% decrease in FFB production.

In FY2007, Tradewinds achieved its first full-year results, recording revenue and pre-tax profit of RM652.9 million and RM159.2 million, respectively. Tradewinds’ revenue and profit before tax continued its upward trend in 3QFY2008, improving to RM656.87 million and RM206.02 million, respectively, mainly due to higher FFB production and higher CPO and PK prices in the first three quarters of the year.

Strengths

Challenges