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MARC has affirmed its AAAIS and AA+IS ratings on Tradewinds Plantation Capital Sdn Bhd’s (Tradewinds Capital) asset-backed RM180 million Class A and RM30 million Class B Sukuk Ijarah (collectively the Sukuk) respectively, with a stable outlook. Wholly-owned by Tradewinds Plantation Berhad (Tradewinds), Tradewinds Capital is a special purpose vehicle established to act as issuer of the sukuk and the lessor in the sale and leaseback transaction of oil palm plantation assets; the sukuk are secured by a portfolio of 12 oil palm plantation estates and three palm-oil mills (the collateral portfolio). The affirmed ratings of the Class A and Class B Sukuk Ijarah reflect satisfactory performance of the securitised plantation assets, higher-than-projected net operating income (NOI) and favourable loan-to-value (LTV) ratios. The stable outlook on the ratings reflects MARC’s opinion that the securitised estates will continue to perform within MARC’s expectations.
At the same time, MARC has maintained its MARC-1ID(bg) / AAAID(bg) on Tradewinds Capital’s RM100 million Bank Guaranteed Murabahah Commercial Paper/Medium Term Notes (BG Murabahah CP/MTN) Programme. The outlook on the ratings is stable. The rating is based on MARC’s ‘AAA’ public information financial institution rating of OCBC Bank (Malaysia) Berhad (OCBCM). Notes issued under the BG Murabahah CP/MTN are fully and unconditionally guaranteed by OCBCM. OCBCM’s rating reflects the agency’s opinion of the strength of the parent/subsidiary relationship between the Oversea-Chinese Banking Corporation Limited (OCBCS) and OCBCM. In addition, based on the financial strength of OCBCS (rated AAA/stable by MARC), MARC believes that OCBCS possesses strong capacity to support OCBM’s operations and financial obligations on a timely basis.
MARC has also affirmed its MARC-1ID rating on Tradewinds Capital’s RM90 million Murabahah Commercial Papers with a stable outlook. Unlike the Sukuk Ijarah, the Murabahah CPs and the BG Murabahah CP/MTN are not serviced from the lease rentals and cash flow generated by the plantation assets that are funding Tradewinds Capital’s obligations under the Sukuk but are essentially direct obligations of the parent, Tradewinds. The rating and outlook on the non-guaranteed Murabahah CPs therefore mirror the affirmed short-term rating and outlook of Tradewinds. The aforementioned rating reflects Tradewinds’ sound liquidity profile, supported by internally generated cash flow and the availability of external liquidity sources in the form of credit facilities. Tradewinds’ credit strengths, in particular its favourable plantation maturity profile and strong cash flow generation, are moderated by volatility in crude palm oil (CPO) prices and the rising cost of production inputs, particularly labour, fuel and fertiliser.
As of July 31, 2011, the securitised estates had a total planted area of approximately 17,707 ha, of which 87% comprised mature oil palms between the ages of four and 25 years. The collateral portfolio has continued to benefit from the healthy tree-maturity profiles of these underlying estates as well as some degree of income diversification given their differing individual geographic locations, including Johor, Terengganu and Sarawak. For the seven-month period ended July 2011 (7MFY2011), an increase in fresh fruit bunches (FFB) production output from the collateral portfolio and higher crude palm oil (CPO) prices contributed to a stronger net operating income (NOI) of RM105.7 million. This was substantially higher than the RM54.2 million recorded in 7MFY2010 and MARC’s assumed sustainable NOI of RM42.0 million. Furthermore, the securitised palm-oil mills contributed an additional RM16.4 million (7MFY2010: 15.9 million) in NOI to total collateral portfolio earnings. Based on the observed performance of the securitised assets over the reviewed period (July 31, 2010 to July 31, 2011), stressed debt service coverage ratios have remained consistent with the ratings for the Class A and Class B Sukuk. Principal redemptions have reduced the outstanding amount of Class A Sukuk to RM120.0 million, while the outstanding amount of Class B Sukuk remains at RM30.0 million. Based on the collateral portfolio’s initial valuation of RM450.4 million, the LTV ratios for the Class A and Class B Sukuk are 26.6% and 33.3% respectively. Ongoing serial redemption of the sukuk will reduce actual loan-to-value ratios, thereby providing higher collateral backing for the remaining sukuk over time.
Tradewinds’ financial performance in recent periods has benefited from an extended period of higher CPO prices. In the first half of its financial year ended December 31, 2011 (1HFY2011), Tradewinds’ recorded revenues of RM565.72 million (1HFY2010: RM376.83 million), supported by higher CPO prices, which averaged RM3,380/MT during the period, and higher production of palm products. Tradewinds’ reported improved profitability; its operating profit margins have been restored to pre-2009 levels. Its stronger cash flow generation in recent periods is reflected in higher-than-FY2009 CFO interest coverage and DSCR levels of 8.58 times and 1.97 times respectively. MARC regards Tradewinds’ acquisition of Mardec Bhd as neutral to its credit profile. Although its consolidated operating profit margins and gearing have weakened following the acquisition, Tradewinds’ robust operational cash flow generation and substantial headroom under its credit facilities provide meaningful offset to the downward pressure on the company’s consolidated credit profile. A deterioration in Tradewinds’ operational cash flows, material erosion of debt protection ratios or a large debt financed acquisition could exert negative pressure on Tradewinds’ creditworthiness.
Major Rating Factors Strengths Satisfactory performance of the securitised pool of plantation assets; Credit-protective features within the terms under both facilities; and Low loan-to-value ratios.
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