RAM Ratings affirms PKPP’s RM650 million Sukuk Wakalah at AA3(s)

Published on 14 Jan 2025.

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RAM Ratings has affirmed the AA₃(s)/Stable rating of Perbadanan Kemajuan Pertanian Negeri Pahang’s (PKPP or the Agency) RM650 mil Sukuk Wakalah Programme (2020/2050).

The affirmation reflects PKPP’s robust financial position and the financial flexibility it derives as a key statutory body driving Pahang’s agricultural development while fulfilling social mandates, including plantation development for settlers and village resettlement programmes. The sukuk rating benefits from a ‘moderately high’ likelihood of extraordinary support from the state government in the event of financial distress. The collateral package pledged to sukukholders, comprising primarily plantation land provides a one-notch enhancement to result in the AA₃(s). As of end-December 2024, the security cover ratio improved to a solid 3.15 times, well above the minimum covenanted 1.67 times due to the gradual repayment of maturing sukuk tranches.

Supported by favourable crude palm oil (CPO) prices and prudent capital management, PKPP’s balance sheet remains strong, with gearing easing to 0.19 times as at end-FY Dec 2023 (end-FY Dec 2022: 0.23 times) and cash reserves of RM741.2 mil comfortably covering total debts of RM588.8 mil. Having maintained a net cash position for two consecutive years, the Agency expects to sustain its liquidity strong profile while gradually redeeming the sukuk.

Operationally, PKPP has a high-cost structure due to its smaller scale and lack of operational efficiencies. However, favourable CPO prices and ongoing initiatives such as mechanisation and a structured tree-replanting programme are expected to gradually mitigate its size constraints and coupled with scheduled sukuk repayments, will result in stronger credit metrics. Forward gearing is expected to reach 0.09 times to 0.16 times while funds from operations debt coverage projected to rise between 0.15 times and 0.19 times over the next few years. 

 

Analytical contacts
Tan Yan Choong
(603) 3385 2502
yanchoong@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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Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
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