MARC has placed its AAAID and AAID ratings on ABS Plantation Assets Berhad’s (ABS Plantation) Class A and Class B Senior Notes Bai-Bithaman Ajil Islamic Debt Securities (BaIDs) respectively on MARCWatch Developing. The MARCWatch placement reflects the uncertainties surrounding ABS Plantation’s planned early redemption exercise, which is contingent on consent from the BaIDsholders in connection with the proposed deferment of the senior notes’ principal redemption due on September 8, 2009 and successful disbursement of the financing facility obtained by Multi Vest Resources Berhad (Multi Vest), which will be used to fund the exercise of the purchase option granted under the rated notes. MARC understands that recently, Multi Vest secured the commitment of a local financial institution to provide a term financing facility, which will be made available for drawdown by December 1, 2009. A modest amount of funding for the exercise of the purchase option will be contributed by internally generated funds from Multi Vest; and balances in ABS Plantation’s designated accounts.

In conjunction with the proposed early redemption of the BaIDs, ABS Plantation plans to defer the principal redemption of RM2.9 million due on September 8, 2009 and to subsequently satisfy these obligations using part of the proceeds from the refinancing facility, which is targeted to be forthcoming before December 1, 2009.  Profit will be payable to BaIDsholders over the deferment period in addition compensation for early redemption. In the event that ABS Plantation receives the consent solicited from its BaIDsholders to proceed with the early redemption, MARC is of the view that BaIDsholders would be exposed to disbursement risk prior to the drawdown of the committed facility.

In the event the ABS Plantation does not proceed with the early redemption of the BaIDs, it would incur a cash outflow of RM3.1 million in March 2010 for additional costs, the deferred principal and the profit over the deferment period in addition to its original obligations under the BaIDs. MARC believes that ABS Plantation will be challenged to meet MARC’s required minimum Finance Service Cover Ratio (FSCR) of 2.2 times and 1.9 times for the Class A and Class B notes to maintain their AAA and AA ratings although its present liquidity is adequate to meet its September 2009 principal redemption. Available liquidity comprises RM606,300 of cash balances in ABS Plantation’s collection account (net of profit payment to be made in September 2009) and additional RM2.9 million cash that Multi Vest has set aside for the purpose of the early redemption exercise. ABS Plantation will continue to rely on cash flows generated by the securitised assets that comprise the plantation assets of Multi Vest’s subsidiary, Benta Plantations (Perak) Sdn Bhd (sellers) and its subsidiaries to meet its remaining debt maturities in accordance with its original debt maturity schedule. While consolidated operating results at Multi Vest’s level continue to be negatively affected by its other loss-making subsidiaries, the payment priority accorded to the lease payments in the distribution of cash flows generated from the securitised assets continues to provide some insulation from ABS Plantation’s financially weak parent. For financial year ended June 30, 2009, Benta’s unaudited profit after tax stood at RM4.4 million while operating cash flow generated for the year was RM19.0 million. The satisfactory performance of Benta relative to other subsidiaries of Multi Vest has, nonetheless, increased its parent’s dependence on Benta’s free cash flows to fund its other operations.

ABS Plantation is a special purpose company formed to purchase the beneficial rights and legal title to the securitised assets. The securitised assets were leased back to the sellers under a lease agreement for up to 30 years. The periodic lease payments form the main source of debt service for the rated notes during the tenure of the transaction. A guarantee on the lease payments has been provided by Multi Vest but this has not been given any weight in arriving at the ratings in light of Multi Vest’s weak financial profile.

MARC will closely monitor the early redemption exercise and cash flow generation of the securitised plantation assets. Any possible liquidity stress of the securitised assets could exert downward pressure on the ratings. MARC expects to resolve the MARCWatch placement and withdraw the ratings upon the redemption of the BaIDs in December 2009.

Contacts:
Nadia Edmaz Abdul Hadi, 03-2090 2262/ nadia@marc.com.my;
Sandeep Bhattacharya, 03-2090 2247/ sandeep@marc.com.my