Published on 28 Oct 2020.
RAM Ratings has assigned an AA3(s)/Stable rating to Perbadanan Kemajuan Pertanian Negeri Pahang’s (PKPP or the Agency) proposed RM650 mil Sukuk Wakalah Programme (2020/2050). The rating is supported by the Agency’s robust balance sheet and liquidity position, important role in supporting agricultural development in Pahang, and financial flexibility derived from the Pahang State Government (the State). The rating also enjoys a one-notch enhancement as the sukuk will be secured against assets with a market value of at least 1.67 times the outstanding amount.
PKPP had been set up as a statutory body, with the main objective of ensuring the development of Pahang’s agricultural sector. The Agency has been tasked with improving the living standards of the rural community by providing the requisite infrastructure for agricultural activities and implementing entrepreneur development programmes. It is also committed to supporting the State’s projects and entities, including non-agricultural related, to which it has contributed more than RM100 mil in the last six years.
The Agency is a relatively small oil palm planter, with about 42,000 ha of planted area (as at end-December 2019) including 5,500 ha of plantations related to its social initiatives. PKPP has ageing trees, which affects yields of fresh fruit bunches (FFB) and crude palm oil, and also compounds its elevated costs. PKPP is currently acquiring 16,500 ha of mainly oil palm estates which will boost its planted area to about 56,000 ha. These plantations will also improve the Agency’s tree maturity profile that are anticipated to lift FFB yields. In addition, PKPP plans to step up its replanting programs and keep up its mechanisation efforts to ease labour shortage issues.
The acquisition of the said plantations, at an estimated cost of RM950 mil, will be financed largely by the issuance proceeds from the proposed Sukuk Wakalah. As such, borrowings are envisaged to spike this year and hover around RM660 mil through fiscal 2022. Despite that, PKPP is anticipated to maintain its sturdy balance sheet and healthy liquidity position, supported by at least RM500 mil of cash reserves. The Agency’s gearing and net gearing ratios are expected to remain below 0.3 and 0.1 times, respectively. Underpinned by an expected improvement in yields, PKPP’s funds from operations net debt coverage is envisaged to stay above 0.4 times over the same period. The Agency enjoys substantial financial flexibility from the State, highlighting its importance in agricultural development and as a key contributor to Pahang.
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Ratings on Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang