Monday, Apr 28, 2003
MARC International, Labuan-based wholly owned subsidiary of Malaysian Rating Corporation Berhad, has affirmed the long-term foreign currency Islamic capital market instrument rating of BBB+is (Islamic Sukuk) to First Global Sukuk Inc.’s Serial Islamic Lease Sukuk Issuance of up to USD368 million (previously up to USD395 million).
The affirmation reflects the satisfactory performance of Kumpulan Guthrie Berhad (Guthrie)’s domestic and overseas palm oil operations, particularly in Indonesia, which have contributed positively to the financial results during the period under review. Other positive factors include growing contributions from its successful ongoing residential property development projects on the local front, its good financial flexibility and anticipated further earnings improvement over the intermediate term arising from the prevailing favourable CPO prices. These positive factors are, however, tempered by the cyclical developments surrounding palm oil-based businesses coupled with political and operating risks concerning its Indonesian operations.
First Global Sukuk Inc. is a Labuan-incorporated special-purpose entity/SPV set up to facilitate the issuance of the Islamic capital market instrument. Structured as a sale and leaseback transaction, proceeds from the issuance were utilized to retire an Ijarah facility raised earlier by Guthrie to purchase Indonesian plantation assets. The leased assets under the sukuk issue consist of Malaysian plantation land operated in the ordinary course of business by Guthrie. The assets were sold to First Global Sukuk Inc. (the lessor) and the latter leases the said assets back to Guthrie for tenures of between three and seven years. Semi-annual USD denominated lease payments from Guthrie (the lessee) will be used to make corresponding rental (Ijarah) payments under the sukuk. At the respective sukuk maturity dates, the sukuk holders will surrender their sukuk and the SPV will put to Guthrie for the payment of the principal amount. Todate, USD150 million has been drawndown under the facility; the balance USD218 million is expected to be issued at a later date.
The SPV’s foreign currency rating has factored in the economic and political risks of operating in Malaysia and Indonesia given that all of Guthrie’s assets are located in the two countries and its earnings derived therefrom. MARC International observes that restrictions have never been imposed on Malaysian companies in servicing their foreign currency obligations as they fall due, notwithstanding the economic crisis and capital controls.
The importance of palm oil as a source of export proceeds in both countries and foreign investment in Indonesia helps mitigate certain aspects of sovereign risks, particularly interference with exports and nationalization. The global nature of palm oil trade, meanwhile moderates Guthrie’s exposure to the country risks of Malaysia and Indonesia compared to companies serving solely domestic markets.
Going forward, MARC International expects significant variations among Guthrie’s operating segments, amongst the prevailing global economic uncertainties. The plantation segment will grow the most rapidly in the intermediate term, providing the bulk of future earnings. Ongoing residential development projects should continue to be a dependable source of earnings derived through benefits from Guthrie’s large, low-cost land bank, the group’s growing reputation for quality residential housing development, and stable underlying demand. This segment also helps balance the cyclicality of the group’s plantation operations. Property development turned in a profit of more than RM500 million in FY2002, the bulk of the group’s operating profit for the year. Meanwhile, contributions from the manufacturing segment are not expected to be significant.
Guthrie’s unaudited FY2002 pre-tax profit stood at RM574.16 million, largely attributable to the gain of RM432 million as a result of the sale of Haron Estate. The group’s plantation sector also performed better, thanks to higher crude palm oil prices which averaged RM1,256 for the whole of 2002 compared to the annual average of RM844 in 2001. MARC International expects Guthrie to register further earnings improvement in tandem with the prevailing favourable CPO prices. In its efforts to pare down its debts, the group has entered into two sale and purchase agreements for the disposal of two separate pieces of land measuring around 426 acres and 525 acres in Selangor, for a consideration of RM115.3 million and RM169.1 million respectively. The proceeds from the disposal is expected to be utilized towards certain debt repayments. Nevertheless, the group remains exposed to its other foreign denominated borrowings, hence the USD-RM and USD-Indonesian Rupiah exchange rate movements. Revenue generated by Guthrie will be a combination of Ringgit and Indonesian Rupiah whereas rental payments and principal repayments in respect of the sukuk are denominated in USD. A mitigating factor, however, is that the global pricing and trading of palm oil commodity is in USD, which somewhat provides a natural hedge in the event of Ringgit or Rupiah depreciation against the USD.
Going forward, Guthrie expects increasing contributions from the Indonesian operations and potential sale proceeds out of selective disposal from its huge landbank will improve its debt servicing capacity.
The affirmation reflects the satisfactory performance of Kumpulan Guthrie Berhad (Guthrie)’s domestic and overseas palm oil operations, particularly in Indonesia, which have contributed positively to the financial results during the period under review. Other positive factors include growing contributions from its successful ongoing residential property development projects on the local front, its good financial flexibility and anticipated further earnings improvement over the intermediate term arising from the prevailing favourable CPO prices. These positive factors are, however, tempered by the cyclical developments surrounding palm oil-based businesses coupled with political and operating risks concerning its Indonesian operations.
First Global Sukuk Inc. is a Labuan-incorporated special-purpose entity/SPV set up to facilitate the issuance of the Islamic capital market instrument. Structured as a sale and leaseback transaction, proceeds from the issuance were utilized to retire an Ijarah facility raised earlier by Guthrie to purchase Indonesian plantation assets. The leased assets under the sukuk issue consist of Malaysian plantation land operated in the ordinary course of business by Guthrie. The assets were sold to First Global Sukuk Inc. (the lessor) and the latter leases the said assets back to Guthrie for tenures of between three and seven years. Semi-annual USD denominated lease payments from Guthrie (the lessee) will be used to make corresponding rental (Ijarah) payments under the sukuk. At the respective sukuk maturity dates, the sukuk holders will surrender their sukuk and the SPV will put to Guthrie for the payment of the principal amount. Todate, USD150 million has been drawndown under the facility; the balance USD218 million is expected to be issued at a later date.
The SPV’s foreign currency rating has factored in the economic and political risks of operating in Malaysia and Indonesia given that all of Guthrie’s assets are located in the two countries and its earnings derived therefrom. MARC International observes that restrictions have never been imposed on Malaysian companies in servicing their foreign currency obligations as they fall due, notwithstanding the economic crisis and capital controls.
The importance of palm oil as a source of export proceeds in both countries and foreign investment in Indonesia helps mitigate certain aspects of sovereign risks, particularly interference with exports and nationalization. The global nature of palm oil trade, meanwhile moderates Guthrie’s exposure to the country risks of Malaysia and Indonesia compared to companies serving solely domestic markets.
Going forward, MARC International expects significant variations among Guthrie’s operating segments, amongst the prevailing global economic uncertainties. The plantation segment will grow the most rapidly in the intermediate term, providing the bulk of future earnings. Ongoing residential development projects should continue to be a dependable source of earnings derived through benefits from Guthrie’s large, low-cost land bank, the group’s growing reputation for quality residential housing development, and stable underlying demand. This segment also helps balance the cyclicality of the group’s plantation operations. Property development turned in a profit of more than RM500 million in FY2002, the bulk of the group’s operating profit for the year. Meanwhile, contributions from the manufacturing segment are not expected to be significant.
Guthrie’s unaudited FY2002 pre-tax profit stood at RM574.16 million, largely attributable to the gain of RM432 million as a result of the sale of Haron Estate. The group’s plantation sector also performed better, thanks to higher crude palm oil prices which averaged RM1,256 for the whole of 2002 compared to the annual average of RM844 in 2001. MARC International expects Guthrie to register further earnings improvement in tandem with the prevailing favourable CPO prices. In its efforts to pare down its debts, the group has entered into two sale and purchase agreements for the disposal of two separate pieces of land measuring around 426 acres and 525 acres in Selangor, for a consideration of RM115.3 million and RM169.1 million respectively. The proceeds from the disposal is expected to be utilized towards certain debt repayments. Nevertheless, the group remains exposed to its other foreign denominated borrowings, hence the USD-RM and USD-Indonesian Rupiah exchange rate movements. Revenue generated by Guthrie will be a combination of Ringgit and Indonesian Rupiah whereas rental payments and principal repayments in respect of the sukuk are denominated in USD. A mitigating factor, however, is that the global pricing and trading of palm oil commodity is in USD, which somewhat provides a natural hedge in the event of Ringgit or Rupiah depreciation against the USD.
Going forward, Guthrie expects increasing contributions from the Indonesian operations and potential sale proceeds out of selective disposal from its huge landbank will improve its debt servicing capacity.