|
MARC has affirmed the following ratings on Tradewinds Plantation Capital Sdn Bhd’s (Tradewinds Plantation Capital) Islamic debt issuances of up to RM400 million: AAAIS and AA+IS ratings on RM60.0 million Class A and RM30.0 million Class B asset-backed Sukuk Ijarah respectively; MARC-1ID(bg)/AAAID(bg) ratings on RM100.0 million Bank Guaranteed Murabahah Commercial Paper/Medium Term Notes (BG Murabahah CP/MTN) Programme; and MARC-1ID rating on RM90.0 million Murabahah Commercial Papers (Murabahah CP).
The outlook on the long-term ratings is stable. Tradewinds Plantation Capital is a special purpose vehicle of Tradewinds Plantation Berhad (Tradewinds) incorporated as the funding vehicle of the abovementioned Islamic securities as well as the lessor in the sale and leaseback of plantation assets comprising 12 oil palm plantation estates and three palm oil mills (collectively known as the collateral assets).
The ratings of the Sukuk Ijarah reflect the adequacy of security and debt service coverages on the Class A and Class B sukuk, which are backed by the healthy maturity profile of oil palm trees, satisfactory estate management and low loan-to-value (LTV) ratios of the collateral assets. As at September 30, 2014, the securitised estates consist of mostly prime mature oil palm trees which accounted for 47.1% of the total planted area of 18,023 ha (September 2013: 48.5%). For the first nine months of 2014 (9M2014), the securitised estates generated a net operating income (NOI) of RM72.9 million on the back of higher fresh fruit bunch (FFB) production coupled with higher average crude palm oil (CPO) selling prices during the period. The NOI generated continue to support MARC’s valuation of the collateral assets at RM450.4 million, which also takes into account the market value of the mills at RM68.6 million and the rating agency’s assumed market capitalisation rate of 11.0%. As at September 30, 2014, LTV ratios for the Class A and Class B Sukuk Ijarah stood at 13.3% and 20.0% respectively. The stable outlook on the ratings of the sukuk reflects MARC’s expectations that the securitised estates will continue to perform within MARC’s expectations to maintain LTVs that commensurate with the ratings.
Unlike the Sukuk Ijarah, the BG Murabahah CP/MTN and Murabahah CP are not directly serviced from the cash flow generated by the collateral assets but via the parent company, Tradewinds. The rating and outlook of the RM100.0 million BG Murabahah CP/MTN Programme are equalised with MARC’s public information rating of AAA/MARC-1/Stable on bank guarantor OCBC Bank (Malaysia) Berhad (OCBCM). The ratings continue to incorporate a one-notch uplift from OCBCM’s standalone credit profile on the basis of support from Singapore-based parent Oversea-China Banking Corporation Limited (OCBC). MARC expects a high likelihood of support given the relative importance of the Malaysian operations to the OCBC group and the common branding shared between the entities. MARC continues to view favourably the group’s asset quality, core earnings profitability and regulatory capitalisation. The BG Murabahah CP/MTN holders are insulated from any downside risks in relation to Tradewinds’ credit profile by virtue of the irrevocable and unconditional bank guarantee provided by OCBCM. Any changes in the supported rating or rating outlook will be largely driven by changes in OCBC’s credit strength.
The rating and outlook of the non-guaranteed Murabahah CP reflect the short-term rating and outlook of Tradewinds. The ‘MARC-1’ rating is premised on Tradewinds’ significant liquidity that it has outside of cash flows and which is available to meet maturing CPs. MARC regards Tradewinds’ financial flexibility via the available liquidity facilities as an important rating driver to mitigate the group’s cash flow shortfalls in servicing debt requirement. For 9M2014, the group posted higher cash flow from operations (CFO) of RM358.9 million (9M2013: RM110.2 million) due to higher net profit from relatively higher CPO selling prices during the period. This, together with lower cash outflow from investment resulted in a positive free cash flow of RM141.1 million. Nonetheless, MARC is concerned on the potential impact of the current trend of commodity prices, which have seen the average CPO price declining to RM2,269/tonne in October 2014 from RM2,516/tonne in January 2014, on the group’s plantation performance going forward. This is in view of Tradewinds’ substantial term loan maturity amounting to RM350.4 million in the next 15 months. As of September 30, 2014, the group’s debt-to-equity ratio stood at 0.78 times on RM2.2 billion in shareholders’ fund and RM1.7 billion of total borrowings.
Major Rating Factors Strengths Stable performance of the securitised pool of plantation assets; Credit-protective features within the terms under both facilities; and Low loan-to-value ratios for Sukuk Ijarah facility.
Challenges Volatility in commodity prices; Low profitability and liquidity; and Lumpy repayment of borrowings in 2015.
|
