RAM Ratings reaffirms PKPP’s AA3 rating for its RM650 million Sukuk Wakalah

Published on 06 Dec 2022.

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RAM Ratings has reaffirmed the AA3(s)/Stable rating of Perbadanan Kemajuan Pertanian Negeri Pahang’s (PKPP or the Agency) RM650 mil Sukuk Wakalah Programme (2020/2050). PKPP was set up as a statutory body, with the main objective of ensuring the development of Pahang’s agricultural sector. The Agency is also tasked with social responsibilities such as the development of plantations for settlers and the resettlement of villages. 

The rating is supported by the Agency’s robust balance sheet and liquidity position, its key role in supporting agricultural development in Pahang, and financial flexibility derived from the state government. Its relatively small size of PKPP’s operation, lack of scale efficiencies, a high-cost structure and weak plantation operating metrics moderates these credit strengths. The one-notch enhancement to the AA3 rating reflects the security pledged for the sukukholders, in line with RAM’s criteria for well-secured debt. As at end-March 2022, the security (namely 18,301 ha of plantation estates) cover for the transaction stood at 2.32 times the outstanding amount, exceeding the required 1.67 times minimum covenanted under the Programme. 

In FY Dec 2021, PKPP’s revenue and operating profit before depreciation, interest and tax surged 63% and 221% y-o-y, respectively. Lofty crude palm oil (CPO) prices were able to outweigh the impact of weaker fresh fruit bunch production resulting from worker shortages last year. As the Agency’s debt load is seen to progressively ease once sukuk principal payment commences in 2023, we expect its balance sheet to remain sturdy, with gearing maintained below 0.25 times. Funds from operations debt coverage (FFODC) will hover around 0.35 times for FY Dec 2022 on the back of high CPO prices. Under our stressed CPO price assumptions, PKPP’s FFODC is expected to be kept above 0.15 times for the next two years. On a net debt basis, debt coverage is viewed to be robust as PKPP is anticipated to return to a net cash position by the end of the year. 

 

Analytical contacts
Hani Hamizah Nor Hashim
(603) 3385 2575
hani@ram.com.my

Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

 

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.

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Published by RAM Rating Services Berhad
© Copyright 2022 by RAM Rating Services Berhad

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