Tuesday, Aug 06, 2002
Malaysian Rating Corporation Berhad (MARC) has assigned a long term rating of A+ ID (Single A plus Islamic Debt) in respect of Kwantas Corporation Berhad’s (KCB) proposed RM100 million Al-Bai Bithaman Ajil Islamic Serial Bonds. The rating reflects the KCB Group’s integrated palm oil operations and expanding activities; new revenue source from the sale of renewable bio-mass energy; and expanding operations in China. The rating is, however, moderated by the Group’s vulnerability to cyclical developments in the palm oil industry.
KCB Group’s credit strength is drawn from the integrated nature of its operations, that ranges from palm oil plantation, milling, refinery, kernel crushing and bulking installation. Sales of refinery products followed by milling, together accounted for the bulk of its total revenue.
The average fresh fruit bunches (FFB) output of the Group’s 8,665 hectares plantation in Lahad Datu, Sabah have generally been above the industry average, reflecting the high composition of mature/prime age trees in its estates. The FFBs are supplied to the Group’s two palm oil mills, accounting for about 36% of the mills’ requirement, with the balance purchased from surrounding estates. The mills’ oil extraction rate were also higher than the industry average.
The resulting crude palm oil and palm kernel are processed at the Group’s refinery and kernel crushing plant, with an installed capacity of 2,400 metric tonnes per day and 1,000 metric tonnes per day respectively; the highest within the Lahad Datu area.
In addition to the main palm oil-based activities, the Group has its own bulking installation facility for storage, handling and transporting/exporting refinery products to overseas destinations, supported by its own jetty situated next to the refinery plant.
KCB recently completed the construction of a 9.8 Mega Watt bio-mass power plant located near to the main transmission grid and within proximity of the refinery plant. About half of the entire electricity output of the plant will be sold to Sabah Electricity Sdn Bhd (SESB) pursuant to a 21-year Renewable Energy Purchase Agreement to be entered into with the utility in the second half of 2002. The sale of renewable energy is expected to contribute around 5% of the Group’s net cashflow, going forward.
Realizing the importance of China as a large market for palm oil products particularly following its entry into the World Trade Organisations (WTO), the KCB Group has embarked on expanding its palm oil operations in the free trade zones located in Guangzhou and Zhang Jiagang. Over the next twelve months, the Group plans to set up bulking installation facilities, refineries as well as shortening plants to cater for the increasing demand in both areas. The expansion plans are expected to be independently funded by the respective operating subsidiaries.
Under the issue structure, a sweep mechanism has been incorporated whereby 50% of any surplus net operational cash flow in a year (as compared to original projected figures) will be transferred to a Commodity Reserve Account to serve as liquidity buffer.
The Group’s profitability measures are expected to improve in the near term, in line with the recovery in palm oil prices. Debt leverage has historically been moderate, ranging between 0.6x to 0.8x over the past four years. Cashflow protection measures appear generally stronger than its rated peers and, going forward, will be driven mainly by increasing contribution from its expanding activities.
KCB Group’s credit strength is drawn from the integrated nature of its operations, that ranges from palm oil plantation, milling, refinery, kernel crushing and bulking installation. Sales of refinery products followed by milling, together accounted for the bulk of its total revenue.
The average fresh fruit bunches (FFB) output of the Group’s 8,665 hectares plantation in Lahad Datu, Sabah have generally been above the industry average, reflecting the high composition of mature/prime age trees in its estates. The FFBs are supplied to the Group’s two palm oil mills, accounting for about 36% of the mills’ requirement, with the balance purchased from surrounding estates. The mills’ oil extraction rate were also higher than the industry average.
The resulting crude palm oil and palm kernel are processed at the Group’s refinery and kernel crushing plant, with an installed capacity of 2,400 metric tonnes per day and 1,000 metric tonnes per day respectively; the highest within the Lahad Datu area.
In addition to the main palm oil-based activities, the Group has its own bulking installation facility for storage, handling and transporting/exporting refinery products to overseas destinations, supported by its own jetty situated next to the refinery plant.
KCB recently completed the construction of a 9.8 Mega Watt bio-mass power plant located near to the main transmission grid and within proximity of the refinery plant. About half of the entire electricity output of the plant will be sold to Sabah Electricity Sdn Bhd (SESB) pursuant to a 21-year Renewable Energy Purchase Agreement to be entered into with the utility in the second half of 2002. The sale of renewable energy is expected to contribute around 5% of the Group’s net cashflow, going forward.
Realizing the importance of China as a large market for palm oil products particularly following its entry into the World Trade Organisations (WTO), the KCB Group has embarked on expanding its palm oil operations in the free trade zones located in Guangzhou and Zhang Jiagang. Over the next twelve months, the Group plans to set up bulking installation facilities, refineries as well as shortening plants to cater for the increasing demand in both areas. The expansion plans are expected to be independently funded by the respective operating subsidiaries.
Under the issue structure, a sweep mechanism has been incorporated whereby 50% of any surplus net operational cash flow in a year (as compared to original projected figures) will be transferred to a Commodity Reserve Account to serve as liquidity buffer.
The Group’s profitability measures are expected to improve in the near term, in line with the recovery in palm oil prices. Debt leverage has historically been moderate, ranging between 0.6x to 0.8x over the past four years. Cashflow protection measures appear generally stronger than its rated peers and, going forward, will be driven mainly by increasing contribution from its expanding activities.