MARC has affirmed the ratings of Dura Palms Sdn Bhd’s (Dura Palms) RM100 million Series A, RM90 million Series B and RM10 million Series C Sukuk Ijarah at AAAIS, AAIS and AIS respectively. The ratings carry a stable outlook. The rating action affects RM150.0 million of outstanding Sukuk. Dura Palms is a special purpose company and wholly-owned subsidiary of Teck Guan Holdings Sdn Bhd (Teck Guan) created for the purpose of issuing the Sukuk Ijarah to facilitate the sale and leaseback of 6,861 hectares of oil palm plantation estates (the securitised estates) owned by Teck Guan’s subsidiaries: Andum Sdn Bhd, Happy Valley Plantation Sdn Bhd and Teck Guan Plantations Sdn Bhd (the sellers/lessees).
 
The affirmed ratings reflect the strong performance of the securitised estates, existing loan-to-value (LTV) ratios that are consistent with the respective ratings, and credit protection features within the transaction’s structure. Under the terms of the transaction, Dura Palms possesses a put option, exercisable upon expected maturity of the Sukuk Ijarah, to sell the securitised estates to the sellers/lessees and use the proceeds thereof to redeem the outstanding Sukuk Ijarah. Should this fail, the assets can be sold to third parties to repay the remaining Sukuk Ijarah before the legal maturity date. In addition, the Sukuk Ijarah benefit from an irrevocable undertaking by Teck Guan Holdings Sdn Bhd (Teck Guan) to provide liquidity support in the event that Dura Palms or the sellers/lessees are unable to fulfil their obligations with respect to the Sukuk Ijarah.

For the financial year ended January 31, 2010 (FY2010), the securitised estates showed a strong collective fresh fruit bunch (FFB) yield performance of 25.0 MT/ha (FY2009: 28.0 MT/ha) against comparable period average regional and industrial yields of 19.0 MT/ha and 19.2 MT/ha respectively. Yield performance was lower than that of FY2009 due to biological stress and increased rainfall during FY2010. The lower yield performance and lower average FFB market prices were reflected in a 31.6% decline in net operating income (NOI) for the securitised estates to RM38.5 million from FY2009’s RM56.3 million. FY2010’s NOI remained above MARC’s assumed stabilised NOI of RM28.3 million on account of higher actual FFB selling prices against assumed prices which had offset the impact of the uptrend in cost of sales since transaction close.
 
Meanwhile, loan-to-value (LTV) ratios in October 2010 for Series A and Series B Sukuk have improved to 27.9% and 54.3% respectively (October 2009: 31.0% and 60.1%) as a result of the redemption of RM50 million of Sukuk in total since issuance. MARC has maintained its discounted cash flow valuation of the securitised estates of RM258.0 million for the purposes of computing the October 2010 LTV ratios on account of FY2010’s NOI remaining within MARC’s assumed stabilized NOI.

The stable outlook for the Sukuk Ijarah reflects MARC’s opinion that the securitised estates will continue to perform within expectations. In addition, given that no refinancing is carried out, MARC believes that the value and saleability of the securitised estates will support redemption of the Sukuk Ijarah by way of disposal of the securitised estates.

Contacts:
Ruben Khoo, +603-2082 2265/ rubenkhoo@marc.com.my;
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my.