Wednesday, Dec 26, 2001
Labuan-based MARC International Limited (MARC International), a wholly owned subsidiary of Malaysian Rating Corporation Berhad, has assigned a long-term foreign currency Islamic capital market instrument rating of BBB+is (Triple B plus, Islamic Sukuk) to the USD395 million serial Islamic lease Sukuk issuance to be made by First Global Sukuk Inc., a Labuan-incorporated special-purpose vehicle (SPV). Structured as a sale and leaseback transaction, proceeds from this financing will be used to retire an Ijarah facility raised earlier by Kumpulan Guthrie Berhad (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 group will sell the assets to First Global Sukuk Inc. (the lessor) and the latter will lease the said assets back to Guthrie for tenures of 3, 5 and 7 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. Consequently, the rating focuses on the ability of Guthrie to make payments under the leases.
The BBB+is rating principally reflects Guthrie’s leading business position within the domestic and global palm oil industry, growing contributions from successful ongoing residential property development projects, anticipated earnings improvement over the medium term and its good financial flexibility. These positive factors are tempered by the cyclical nature of Guthrie’s plantation business, the relatively higher political and operating risks of its newly acquired Indonesian operations, and weakened debt protection measures arising from its recent acquisitions.
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.
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.
Although Guthrie’s overall operating outlook is positive, MARC International expects significant variations among the segments. The increased scale and scope of the group’s plantation segment following recent acquisitions, will allow Guthrie to consolidate the group’s position as a dominant producer of palm oil. The plantation segment will grow the most rapidly in the intermediate term, providing the bulk of future earnings. Property development, primarily residential, benefits from a large, low-cost land bank, the group’s growing reputation for quality residential housing development, and stable underlying demand. Property development turned in a profit of RM223.7 million in FY2000, the bulk of the group’s operating profit for the year. Ongoing residential development projects should continue to be a dependable source of earnings through the intermediate term and help balance the cyclicality of the group’s plantation operations. Contributions from the manufacturing segment are not expected to be significant.
Going forward, Guthrie expects contributions from the newly acquired Indonesian plantations and land sale proceeds to enhance its debt servicing capacity. Debt protection measures will come under pressure if Guthrie is unable to realize the expected level of cash flows from its Indonesian operations or asset sales. The group’s good financial flexibility, evidenced by demonstrated access to capital markets, is expected to provide important rating support in such circumstances.
The BBB+is rating principally reflects Guthrie’s leading business position within the domestic and global palm oil industry, growing contributions from successful ongoing residential property development projects, anticipated earnings improvement over the medium term and its good financial flexibility. These positive factors are tempered by the cyclical nature of Guthrie’s plantation business, the relatively higher political and operating risks of its newly acquired Indonesian operations, and weakened debt protection measures arising from its recent acquisitions.
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.
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.
Although Guthrie’s overall operating outlook is positive, MARC International expects significant variations among the segments. The increased scale and scope of the group’s plantation segment following recent acquisitions, will allow Guthrie to consolidate the group’s position as a dominant producer of palm oil. The plantation segment will grow the most rapidly in the intermediate term, providing the bulk of future earnings. Property development, primarily residential, benefits from a large, low-cost land bank, the group’s growing reputation for quality residential housing development, and stable underlying demand. Property development turned in a profit of RM223.7 million in FY2000, the bulk of the group’s operating profit for the year. Ongoing residential development projects should continue to be a dependable source of earnings through the intermediate term and help balance the cyclicality of the group’s plantation operations. Contributions from the manufacturing segment are not expected to be significant.
Going forward, Guthrie expects contributions from the newly acquired Indonesian plantations and land sale proceeds to enhance its debt servicing capacity. Debt protection measures will come under pressure if Guthrie is unable to realize the expected level of cash flows from its Indonesian operations or asset sales. The group’s good financial flexibility, evidenced by demonstrated access to capital markets, is expected to provide important rating support in such circumstances.