RAM Ratings has reaffirmed the AAA rating of the RM40 million Class A Sukuk Ijarah (2005/2016) (“Sukuk Ijarah”) issued by RH Capital Sdn Bhd (“RH Capital” or “the Issuer”); the rating has a stable outlook.
RH Capital is a special-purpose vehicle incorporated as the financing conduit for an Islamic sale-and-leaseback transaction, backed by 3 oil-palm plantations and 2 palm-oil mills (collectively known as “the Assets”) located in Sarawak.
The lessees, which are subsidiaries of Tiong Toh Siong Holdings Sdn Bhd (one of the main holding companies within the Rimbunan Hijau Group), had sold their beneficial interests in the Assets to RH Capital.
In turn, RH Capital had leased the Assets back to the respective lessees; the financial obligations under the Sukuk Ijarah are met via lease payments from the lessees.
The rating reflects the strong collateral value backing the Sukuk Ijarah.
Based on RAM’s calculation of the sustainable value of the Assets, the loan-to-value ratio of the Sukuk Ijarah comes up to 32.41%, with a corresponding debt service coverage ratio of 2.51 times.
The stable outlook reflects our view that the lessees will be able to meet their scheduled Ijarah payments and, in turn, the payment obligations under the Sukuk Ijarah.
Overall, RH Capital’s 3 estates delivered a stable performance in fiscal 2012.
Their average fresh fruit bunches (“FFB”) yield edged up from 13.0 to 13.3 MT/ha. Nonetheless, this remained below Sarawak’s average of 16.5 MT/ha, a result of their steeper terrain and a younger tree-maturity profile.
Although slightly below industry average, the oil-extraction and kernel-extraction rates of the palm-oil mills remained broadly unchanged at 19.7% and 3.9%, respectively.
The estates’ OPBDIT margin narrowed in fiscal 2012, mainly due to a lower average FFB selling price of RM505.52/MT (-17.6% y-o-y) and a heftier production cost of RM5,397/ha (+5.9% y-o-y).
Nonetheless, the overall operating cashflow of the 3 estates still exceeded RAM’s sustainable-cashflow assumption of RM10 million.
Going forward, we expect some margin compression in tandem with rising production costs. However, this may be offset by better output as well as firm FFB and CPO prices.
All said, we note that the lessees have to date been able to promptly and fully meet the payments on their scheduled lease obligations, thus enabling RH Capital to fulfil its commitments.
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