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MARC has affirmed the ratings of ABS Plantation Assets Berhad’s (ABSP) RM50.0 million Class A and RM45.0 million Class B Bai Bithaman Ajil Islamic debt securities (Notes) at AAAID and AAID respectively. Additionally, MARC has assigned a stable outlook to the ratings. The affirmed ratings follow a satisfactory performance review of the securitised palm oil estates. The performance of this plantation asset-backed transaction is notably dependent on the operating performance of the estates which has been affected by the continuing volatility in crude palm oil (CPO) prices. The stable outlook on the ratings reflect expectations that estate performance will remain within MARC’s assessed sustainable net operating income (NOI) of RM13.5 million and long-term CPO price assumption of RM1,500/MT. To the extent CPO prices deteriorate below our long-term price assumption, actual NOI could fall below MARC’s assessed sustainable NOI for the estates. If this occurs for an extended period of time, there could be downward pressure on the outlook or ratings.
ABSP, wholly-owned by Bursa Malaysia-listed Multi Vest Resources Berhad (Multi Vest), is a special purpose company formed to purchase the beneficial rights to the securitized assets comprise plantation assets of Multi Vest’s subsidiary, Benta Plantations Sdn Bhd (BPSB) (sellers) and its subsidiaries. The securitized assets were leased back to the sellers under an Ijarah Agreement for up to 30 years. The sale of the plantation assets has been structured as true-sale for legal purposes with the rights in, title to and interest in the plantation assets being transferred to ABSP. The periodic lease payments forms the main source of debt service for the rated Notes during the tenure of the transaction. A guarantee on the lease payments has been provided by Multi Vest but this has not been given any weight in arriving at the ratings in light of Multi Vest’s weak financial profile.
The Notes incorporate a tail period of one year between expected and legal maturity for the respective classes. Redemption of the Notes will be sequential commencing six months and eighteen months from date of issuance of Class A and Class B notes respectively. Class A and B notes are expected to amortize by 70% and 36% respectively at the end of the transaction, reducing refinancing risk at maturity. Since transaction close and up to November 30, 2008, RM10.6 million of principal has been paid down, resulting in reduced LTVs of 38.2% and 75.0% for Class A and Class B notes, respectively.
The plantation assets comprise approximately 3,635.5 hectare (ha) of plantation estate land in Teluk Intan, Perak together with mill and other identified machineries used in the operations. As at October 31, 2008, 100% of the total planted area comprised mature oil palms of which 66.1% are in their prime stage, 28.9% are young palm trees and the remaining 5% are over-aged palms. The securitised plantation estates recorded above industry average over the past five years. In 2007, the FFB processed by the mill decreased by 13.6% to 116,875 tonnes (2006: 135,282 tonnes) due to lower external supply of FFB as a result of weather-related effects in Perak. Overall, the oil extraction rate (OER) of the CPO and recovery rate of palm kernel (PK) for the securitised plantation estates were comparable to the industry averages.
For the financial period ended June 30, 2008 (FY2008), the securitised plantation assets registered a higher net operating income (NOI) of RM38.6 million (FY2007: RM18.9 million), attributed mainly to higher CPO and PK prices. MARC’s assumed sustainable NOI of RM13.5 million and discounted cash flow valuation on the securitized assets of RM112.5 million incorporates an assumed long-term CPO price of RM1,500 /MT. For the three-month period ended October 31, 2008, a NOI of RM12.2 million was registered. As at September 2008, the FSCRs for Class A and Class B notes stood at 3.51 times and 2.07 times respectively, higher than MARC’s required minimum FSCR of 2.2 times and 1.9 times for AAA and AA rated notes respectively.
Strengths Improved net operating income supported by strong crude palm oil prices in the first half of 2008; Structural protections incorporated in the transactions; and Amortising structure leads to a progressive reduction in loan-to-value ratio, translating to stronger credit support for Class A and Class B over the tenure of the transaction.
Challenges Increasing cost of producing fresh fruit bunches (FFB); Volatility and continued weakening of CPO prices; and FFB production and yield are susceptible to climate conditions.
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