RAM Ratings has assigned an AAA(fg)/stable rating to Chellam Plantations (Sabah) Sdn Bhd's (the Group) first issuance of a RM150 million sukuk under its Guaranteed Sukuk Murabahah Programme of up to RM300 million. The enhanced issue rating is premised on an irrevocable and unconditional guarantee extended by Danajamin Nasional Berhad (rated AAA/Stable/P1) on the RM150 million sukuk. Chellam Plantations has a total landbank of about 16,900 ha across Sabah and East Kalimantan, of which 13,358 ha has been planted.
Independent of the financial guarantee, Chellam Plantations' stand-alone credit profile is moderated by sub-par productivity. Dragged by the Group's low performing estates in Sabah amid undulating terrain, fresh fruit bunch (FFB) yields at its Sabah estates has been soft (FY Dec 2015: 16.1MT/ha), underperforming the state's average FFB yield of about 20MT/ha. A substantial increase in mature hectarage in East Kalimantan (weighted-average age of 5 years) had further diluted the Group's yield indicators in FY Dec 2015, as FFB and crude palm oil (CPO) yields declined to 11.9MT/mature ha and 2.7MT/ha (FY Dec 2014: 12.7MT/mature ha and 2.9MT/ha), respectively.
While the Group's ex-estate production cost is competitive, its heavy dependence on third-party FFBs to optimise its milling capacity had kept cost per MT of CPO produced elevated at between RM1,700/MT and RM2,000/MT over the past 4 years. Chellam Plantations' internal production had only accounted for 20% of total FFBs milled in fiscal 2015, exposing it to competition for external FFBs in the vicinity of its 3 mills. Nevertheless, RAM notes that the Group's mill in Sabah had recorded full utilisation last year. The capacity of one of its mills in Indonesia has improved to 70% while a second unit that had been commissioned last year is ramping up operations. In addition, the Group's oil extraction rate had also been noteworthy, averaging about 23% in the past 4 years as compared to national average of 20.4% over the similar period.
Chellam Plantations has relied heavily on debt funding for business growth while its estates are still relatively young and low yielding. The Group is highly leveraged, with a debt-to-OPBDIT ratio of 13.5 times as at end-December 2015. Amid still weak profitability, its' cashflow debt coverage was thin, with FFODC of about 0.1 times in the last 3 years. Elsewhere, the Group has weak liquidity, with only RM5.1 million of cash held against RM82.5 million of short-term debts. That said, the proposed sukuk issuance spreads out Chellam Plantations' debt maturity profile, allowing better matching vis-à-vis its future cashflow generation.
On a positive note, RAM expects the Group's financial profile to improve going forward, underpinned by its favourable tree maturity profile. Its relatively young trees - with a weighted-average age of 8 years - position it well for a strong growth in FFB production. Chellam Plantations expects the maturing of its young trees and initiatives from its rehabilitation exercise to underpin an average annual 17% growth in FFB output over the next three years.
Media contact
Juliana Koay
(603) 7628 1169
juliana@ram.com.my
© Press Release 2016
