KUALA LUMPUR (March 19): PLANTATION [] based BJ Corporation Sdn Bhd has proposed to issue 10-year debt bank-guaranteed medium-term notes (MTN) programme of up to RM255 million.
RAM Rating Services Bhd said on Monday it had assigned a preliminary AAA(bg) rating to the MTN and accorded a stable outlook for the rating.
It said the enhanced rating reflected the unconditional and irrevocable bank guarantee extended by MALAYAN BANKING BHD [] which it had rated AAA/Stable/P1.
“The backing of the bank guarantee enhances the credit profile of the proposed debt facility beyond BJ Corp’s inherent credit strength,” it said.
RAM Ratings said BJ Corp’s core activity is cultivating of oil palm plantations and it is an indirect unit of Asian Plantations Ltd -- a plantation group listed on the Alternative Investment Market of the London Stock Exchange since November 2009.
The group’s oil palm plantations are spread across three estates, all of which are in Sarawak. BJ Corp’s 4,795-ha plantation is the smallest.
Proceeds from the proposed debt facility will be used to refinance existing bank loans, partially finance the CONSTRUCTION [] of a vertical steriliser mill and fund development expenditure.
RAM Ratings’ head of real estate and construction ratings, Shahina Azura Halip described BJ Corp as a debutant in the plantation sector and lacked an operating track record.
“As plantings only began in 1Q 2009, its trees are primarily in the immature category (up to three years). We envisage that the company will only be able to demonstrate meaningful production and yield records after four years,” she said.
“However, the limited operating track record is partly mitigated by the Company’s experienced management team. BJ Corp’s estate is led and managed by a group of experienced planters, who bring with them 15 to 33 years’ experience each from their previous stints with reputable plantation groups in the country,” she adds.
Shahina said additionally, BJ Corp’s stand-alone credit strength reflected the company’s heavy expenses, a result of the significant costs involved in developing and nurturing its young estate. This is compounded by the challenge of the estate’s undulating terrain.
Due to the greenfield nature of its estate as well as its hefty costs and fixed overheads, the company’s financial position is rather weak.
“BJ Corp is highly dependent on equity injections from its parent; APL had extended financial support to the Company during its formative years. We expect this firm support to continue,” she said.
As at end-October 2011, advances from the group amounted to RM17.9 million; these are unsecured, interest-free and have no fixed repayment terms.
The solid support is further underlined by the availability of a corporate guarantee from APL to the guarantor.
Nonetheless, the ratings agency said APL’s cashflow-generating aptitude is deemed weak due to its young estates. Consequently, the group also has to rely on financial support from its major shareholder, Keresa Plantations Sdn Bhd.
“Due to lack of information, however, RAM Ratings is unable to ascertain the extent of such support or the ability of Keresa Plantations to extend such backing, should the group’s future funding needs substantially exceed what has been required to date.
“Meanwhile, BJ Corp’s financial performance will remain vulnerable to the vagaries of the oil-palm industry, chief of which is the volatile price swings for crude palm oil. Nevertheless, demand for CPO will remain supported by increasing food consumption and the world’s expanding population,” said the ratings agency.
RAM Rating Services Bhd said on Monday it had assigned a preliminary AAA(bg) rating to the MTN and accorded a stable outlook for the rating.
It said the enhanced rating reflected the unconditional and irrevocable bank guarantee extended by MALAYAN BANKING BHD [] which it had rated AAA/Stable/P1.
“The backing of the bank guarantee enhances the credit profile of the proposed debt facility beyond BJ Corp’s inherent credit strength,” it said.
RAM Ratings said BJ Corp’s core activity is cultivating of oil palm plantations and it is an indirect unit of Asian Plantations Ltd -- a plantation group listed on the Alternative Investment Market of the London Stock Exchange since November 2009.
The group’s oil palm plantations are spread across three estates, all of which are in Sarawak. BJ Corp’s 4,795-ha plantation is the smallest.
Proceeds from the proposed debt facility will be used to refinance existing bank loans, partially finance the CONSTRUCTION [] of a vertical steriliser mill and fund development expenditure.
RAM Ratings’ head of real estate and construction ratings, Shahina Azura Halip described BJ Corp as a debutant in the plantation sector and lacked an operating track record.
“As plantings only began in 1Q 2009, its trees are primarily in the immature category (up to three years). We envisage that the company will only be able to demonstrate meaningful production and yield records after four years,” she said.
“However, the limited operating track record is partly mitigated by the Company’s experienced management team. BJ Corp’s estate is led and managed by a group of experienced planters, who bring with them 15 to 33 years’ experience each from their previous stints with reputable plantation groups in the country,” she adds.
Shahina said additionally, BJ Corp’s stand-alone credit strength reflected the company’s heavy expenses, a result of the significant costs involved in developing and nurturing its young estate. This is compounded by the challenge of the estate’s undulating terrain.
Due to the greenfield nature of its estate as well as its hefty costs and fixed overheads, the company’s financial position is rather weak.
“BJ Corp is highly dependent on equity injections from its parent; APL had extended financial support to the Company during its formative years. We expect this firm support to continue,” she said.
As at end-October 2011, advances from the group amounted to RM17.9 million; these are unsecured, interest-free and have no fixed repayment terms.
The solid support is further underlined by the availability of a corporate guarantee from APL to the guarantor.
Nonetheless, the ratings agency said APL’s cashflow-generating aptitude is deemed weak due to its young estates. Consequently, the group also has to rely on financial support from its major shareholder, Keresa Plantations Sdn Bhd.
“Due to lack of information, however, RAM Ratings is unable to ascertain the extent of such support or the ability of Keresa Plantations to extend such backing, should the group’s future funding needs substantially exceed what has been required to date.
“Meanwhile, BJ Corp’s financial performance will remain vulnerable to the vagaries of the oil-palm industry, chief of which is the volatile price swings for crude palm oil. Nevertheless, demand for CPO will remain supported by increasing food consumption and the world’s expanding population,” said the ratings agency.
