ABS Plantation Assets Bhd - 2009 Credit Commentary Report

MARC is issuing this interim update following the completion of its review initiated in November 2009 on its AAAID and AAID ratings on ABS Plantation Assets Berhad’s (ABS Plantation) RM50.0 million Class A and RM45.0 million Class B Senior Notes Bai-Bithaman Ajil Islamic Debt Securities (BaIDs) respectively. For this review, MARC’s assessment of the securitised plantation assets’ performance is primarily based on the preliminary unaudited financial results of Benta Plantations (Perak) Sdn Bhd (Benta) for the year ended June 30, 2009, due to non-availability of data on operational performance of the assets (Benta and its subsidiaries are the sellers/lessees in this sale and leaseback plantation asset-backed transaction).

MARC believes that the performance of the securitised assets remains broadly satisfactory based on Benta’s adequate FY2009 operating performance, in particular its reported unaudited pre-tax profit of RM4.5 million and positive net cash flow from operations of RM24.2 million. In addition, ABS Plantation’s near-term liquidity appears to be sufficient to meet its debt obligations under the BaIDs come March 2010 even if the early redemption of the BaIDs does not proceed. The ratings remain on MARCWatch Developing where they were first placed on August 28, 2009 pursuant to ABS Plantation’s proposed early redemption of the BaIDs which is targeted for completion before end of 2009.

In financial year 2009 (FY2009), Benta recorded higher net cash flow from operations of RM24.2 million (FY2008: RM21.4 million). MARC expects net cash flows to increase in the coming months as the plantation enters high production season.

ABS Plantation had earlier obtained approval from BaIDholders to defer a RM2.9 million principal redemption due on September 8, 2009, in conjunction with the proposed early redemption exercise of the BaIDs, and intends to fully retire the BaIDs using part of the proceeds from a committed refinancing facility. MARC understands that ABS Plantation is in the midst of concluding the documentation process.

In the event ABS Plantation does not proceed with the early redemption of the BaIDs, it will incur a cash outflow of RM3.1 million in March 2010 for additional costs, the deferred principal and the profit over the deferment period in addition to its original obligations under the BaIDs. Based on its current balances in the designated accounts, this will eventually result in finance service cover ratios (FSCR) of 1.92 times (x) and 1.13x for the Class A and Class B notes respectively, which is lower than MARC’s required minimum level of 2.2x and 1.9x under this transaction. However, its current liquidity position is still sufficient to meet the due obligations. Available liquidity comprises RM497,687 of confirmed cash balances in ABS Plantation’s collection account (net of profit payment which was to have been made in September 2009 according to the original payment schedule) and additional RM2.9 million cash that Multi Vest Resources Bhd (Multi Vest) has set aside for the purpose of the early redemption exercise.

MARC expects to resolve the MARCWatch Developing status of the ratings upon completion of the refinancing which is expected to take place by end of 2009.