RAM Ratings has reaffirmed the AAA ratings of Golden Crop Returns (Golden Crop) Series 1 and Series 2 Sukuk Al-Ijarah.
Concurrently, the respective ratings of the issuer's Series 3, Series 4 and Series 5 Sukuk have been upgraded from AA2, AA3 and A1 to AAA, AA1 and AA2. All the long-term ratings have a stable outlook. The rating upgrades are premised on the corresponding Sukuk's improved collateral support after an adjustment in our valuation approach for commercial real estate (CRE)-backed transactions involving oil-palm plantations. The stable outlook is underpinned by RAM’s expectation that the relevant plantation assets will exhibit a stable performance and, in turn, support the debt obligations for the remaining tenure of the transaction.
Golden Crop is a trust-owned, special-purpose company that had been set up as the financing vehicle for this sale-and-leaseback transaction, backed by 17 plantations and five mills of entities (lessees) within the Boustead Holdings Group (Boustead). Following the exercise of the first 2 call options by the Lessees to redeem Tranche 1 and Tranche 2 of the Sukuk, Golden Crop now has 13 remaining estates - with a total land area of 28,928 hectares (ha) - and four mills (collectively, the Plantation Assets), which form the collateral for the outstanding MYR 242 million Tranche 3 Sukuk.
Pursuant to the adjustment in its valuation approach for oil palm plantations-backed transaction, its sustainable-cashflow assumption for the estates has increased 19.9 per cent to MYR 48.8 million. Correspondingly, the adjusted value of the estates, together with the mills, sum up to MYR 444.1 million (from the previous MYR 376 million). This has resulted in lower loan-to-value ratios of a respective 29.1 per cent, 36.3 per cent, 44.8 per cent, 48.4 per cent and 54.5 per cent for Series 1 to 5 of the Sukuk, along with higher debt service coverage ratios of 3.8 times, three times, 2.5 times, 2.3 times and 2 times. The transaction is also underpinned by structural features, including the trigger mechanism that allows recovery via the disposal proceeds from the Plantation Assets before the transaction defaults, and the liquidity reserve that is equivalent to 2 periodic distributions of income and 12 months of the Issuer's expenses.
In FYE 31 December (FY Dec) 2011, the estates recorded a 2.7 per cent year-on-year (y-o-y) increase in net operating cashflow to MYR 113 million, mainly due to stable yields of fresh fruit bunches (FFB) and higher-than-assumed FFB selling prices. For the same year, the mills' overall oil- and kernel-extraction rates stayed relatively stable at 20.7 per cent and 4.4 per cent, respectively. Overall, the Lessees generated a healthier cashflow of MYR 175.3 million (FY Dec 2010: RM137.9 million), backed by a higher average CPO selling price of MYR 3,275 per MT (+42 per cent y-o-y). Supported by the anticipated firm CPO prices and stable FFB production, we envisage that the Lessees will be able to sustain their performance.
RAM Ratings has received notification from Boustead that the lessees have exercised their respective call options to buy back the relevant estates and mills. The exercise price is expected to be paid by 22 October 2012, a month prior to the maturity of the Tranche 3 Sukuk, as stipulated under the terms of the transaction. RAM Ratings will continue monitoring the transaction and make the appropriate announcements when necessary. For a detailed explanation on our adjusted valuation approach for oil-palm plantations-backed transactions, please refer to Criteria Update: CRE-backed Transactions Involving Oil-Palm Plantations, published on 12 April 2012.
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