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RAM Ratings affirms guarantee-enhanced AA1 ratings of Agroto’s sukuk
Published on 19 Jun 2024.
RAM Ratings has affirmed the AA1(bg)/Stable ratings of the RM200 mil five-year tranche and RM100 mil seven-year tranche under Agroto Business (M) Sdn Bhd’s (Agroto or the Group) ASEAN Sustainability SRI Sukuk Programme of up to RM300 mil (2021/2036).
The ratings are premised on an irrevocable and unconditional guarantee extended by Sabah Development Bank Berhad (rated AA1/Stable/P1) which enhances the credit standing of the sukuk beyond Agroto’s standalone credit strength. Agroto is a notable vegetable grower in Malaysia, with nearly 115 acres of planted area in Kinta Highlands, Perak. The Group’s modern farming methods deliver superior yields and product quality, which have allowed it to obtain major certifications that are important to established retail and restaurant chains, besides providing access to export markets.
In FY Dec 2023, Agroto’s revenue increased 13.3%, largely on the back of higher selling prices (+6%), while its operating profit was marginally negative. The Group continues to record pre-tax losses, albeit on a narrowing trend, reflecting the still-inadequate scale to fully cover its operational and financial obligations. The Group’s planned 100-acre farm expansion was further delayed with the proposed issuance of the second RM100 mil sukuk tranche, now targeted by the end of the year. Operating profitability should improve once the expansion is completed.
As at end-December 2023, Agroto’s gearing ratio climbed to 1.03 times (end-December 2022: 0.86 times) as equity was eroded by a widening retained loss. We project gearing to rise further to around 1.6 times in fiscal 2024 following the expected sukuk drawdown this year. With heftier financial costs over the next two years, the Group’s liquidity position is tight. We anticipate shareholder advances to be forthcoming to alleviate any cashflow shortfalls, as seen in the past.
Excluding the bank guarantee, the Group has a weak standalone credit profile. Intense competition within the fragmented vegetable industry and Agroto’s limited production capacity and high leverage have strained its operating and financial performance. High customer and product concentration also tempers Agroto’s credit profile, though successful capacity expansion can help moderate these risks.
Analytical contacts
Hani Hamizah Nor Hashim
(603) 3385 2575
hani@ram.com.my
Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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
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