20 Aug 2010
RAM Ratings has reaffirmed the respective AAA, AA2 and P1(s)/AAA(s) ratings of the Class A and Class B Sukuk Ijarah and Sukuk Ijarah Commercial Paper/Medium-Term Notes (CP/MTN) Programme (collectively known as "the Islamic Securities") issued by Midas Plantation Sdn Bhd (Midas or Issuer). Concurrently, the rating of the Issuer's Class C Sukuk Ijarah has been upgraded from A2 to AA3. All the long-term ratings have a stable outlook, reflecting our expectation that the Lessees (the operators of the transaction's assets) will be able to meet their scheduled lease payments and, in turn, the payment obligations under the Islamic Securities throughout their remaining tenures.

The ratings of the RM50 million Sukuk Ijarah CP/MTN Programme reflect the enhancement in the form of a Sukuk Put Option, granted by OCBC Bank (Malaysia) Berhad (OCBC) to the sukuk holders. RAM Ratings upgraded OCBC's financial institution ratings, from AA1/P1 to AAA/P1, on 5 November 2009; the long-term rating has a stable outlook.

Midas is a special-purposed company incorporated as the financing vehicle for an Islamic sale-and-leaseback transaction backed by 2 oil-palm plantations and 1 palm-oil mill (collectively known as "the Assets"). The Lessees - RH Plantation Sdn Bhd (RH Plantation) and Timrest Sdn Bhd (Timrest) - had sold their beneficial interests in the Assets to Midas which, in turn, had leased the Assets back to the respective Lessees. The financial obligations under the Islamic Securities are met via the semi-annual lease payments received from the Lessees.

Meanwhile, the ratings of the Islamic Securities are supported by the transaction's structural features, loan-to-value (LTV) ratios and debt service coverage ratios (DSCRs). During the period under review, the cashflow from the plantations fell within our sustainable-cashflow assumption. Together with the palm-oil mill (the Mill), the resultant adjusted valuation supporting the LTV ratios and DSCRs for the Class A and Class B Sukuk Ijarah remained commensurate with their respective ratings. The upgrade for the long-term rating of the Class C Sukuk Ijarah had been prompted by the improvement in its LTV and DSCR levels, to 49.28% (end-August 2009: 55.24%) and 1.98 times (end-August 2009: 1.86 times), following its RM10 million partial redemption on 25 June 2010.

The Lessees' average yield on fresh fruit bunches (FFB) had edged up to 16.3 MT/ha as at end-August 2009 (end-August 2008: 16.1 MT/ha). This marks the first time that the plantations' overall FFB yield has surpassed Sarawak's average since the beginning of this transaction. The better performance was due to the plantations' healthy tree-maturity profile and the management's strategy of improving the performance of low-yielding trees. Consequently, output of crude palm oil (CPO) from the Mill had also increased, despite the more numerous competing mills in the vicinity. Underpinned by stringent FFB grading, the Mill's oil-extraction and kernel-extraction rates were lifted to 21.6% and 5.1% from 21.3% and 4.8%, respectively.

Nonetheless, the Lessees' financial performance weakened in FY Aug 2009, undermined by a 40% year-on-year plunge in FFB prices and a 34% drop in CPO prices. Given the stronger CPO prices now and the plantations' healthy tree-maturity profile, however, we expect the Lessees to deliver a better showing in the latter part of FY Aug 2010. We therefore expect the transaction to perform satisfactorily throughout its remaining tenure.

-Ends-

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security's market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

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Published by RAM Rating Services Berhad
© Copyright 2010 by RAM Ratings

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