Kwantas SPV Sdn Bhd - 2010 |
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Report ID | 3883 | Popularity | 1574 views 85 downloads | |||||
Report Date | Feb 2011 | Product | ||||||
Company / Issuer | Kwantas SPV Sdn Bhd | Sector | Plantations | |||||
Price (RM) |
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Rationale |
MARC has affirmed its AAAID rating on Kwantas SPV Sdn Bhd’s (Kwantas SPV) outstanding RM80 million Class A Sukuk with a stable outlook. Concurrently, MARC has withdrawn its AAAID and A+ID ratings on Kwantas SPV’s RM15 million Class B and RM60 million Class C Sukuk respectively, which were fully redeemed on November 19, 2010. MARC has also affirmed its ratings on Kwantas SPV’s RM65 million Murabahah Commercial Papers/Medium Term Notes (CP/MTN) at MARC-2ID(cg)/A-ID(cg). The rating outlook on the CP/MTN remains negative. Wholly-owned by Kwantas Corporation Berhad (KCB), Kwantas SPV is a special purpose company incorporated to issue the Sukuk Ijarah and CP/MTN programmes. At transaction close, Kwantas SPV acquired and leased back securitised plantation estates to KCB-related entities for the benefit of sukukholders and executed Murabahah sale and purchase agreements for the benefit of the noteholders. The lessees’ obligations under the leases and Kwantas SPV’s obligations under the Murabahah CP/MTN are guaranteed by KCB. The affirmed rating of the Class A Sukuk is premised on the satisfactory net operating income (NOI) generated by the securitised plantation estates, which remained higher than MARC’s assessed sustainable income of the said assets. The loan-to-value (LTV) ratio for the Class A Sukuk remains at 31.4%, reflecting strong collateral backing for the sukukholders. The stable outlook incorporates MARC’s expectations that the actual performance of the estates will remain within MARC’s assessed sustainable NOI. Meanwhile, the ratings on the Murabahah CP/MTN mirror the short- and long-term corporate credit ratings of KCB as the guarantor of the notes. The affirmed ratings and negative outlook reflect continued pressure on KCB’s consolidated credit profile due to its unprofitable downstream operations in China. KCB has reduced production at several of its processing plants in China to curtail losses. MARC remains concerned about the relatively weak near-term prospects for KCB’s refinery and oil processing businesses and the group’s continued dependence on short-term borrowings to fund capital expenditure. KCB announced a turnaround pre-tax profit of RM5.2 million for FY2010 following FY2009’s pre-tax loss of RM95.3 million. However, MARC notes that revenue had fallen by 20% and KCB’s improved financial performance had been achieved through curtailing production at its processing plants in China. Plant capacity utilisation has fallen to 27% for its refinery mill in Malaysia and below 10% for three of its plants in China. At the same time, the group’s reduced net working capital and modest profit have helped lift its operating cash flow to RM221.5 million which was used to fund its RM183.8 million of capital investments in FY2010. MARC believes that KCB’s high reliance on short-term borrowings increases KCB’s exposure to rollover and refinancing risk. The group had cash and bank balances of RM60.9 million (FY2009: RM50.0 million) as of September 30, 2010 against short-term borrowings of RM637.3 million. More than 90% of the borrowings mainly comprise revolving credit facilities. At the same time, the group has RM266 million remaining availability under its committed credit facilities. MARC views KCB’s ability to generate sufficient operating cash flows to meet its debt obligations and capital commitments as highly dependent on sustained CPO prices and reduced capital spending.
Challenges
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