RAM reaffirms Chellam Plantations’ AAA(fg) sukuk rating

KUCHING: RAM Ratings has reaffirmed the AAA(fg)/Stable rating of the RM150 million 10year tranche (2016/2026) under Chellam Plantations ( Sabah) Sdn Bhd’s RM300 million Guaranteed Sukuk Murabahah Programme (2016/2033).

The enhanced rating is premised on an irrevocable and unconditional guarantee extended by Danajamin Nasional Berhad (rated AAA/Stable/P1) on the tranche.

Independent of the financial guarantee, Chellam Plantations’ stand- alone credit profile is constrained by its position as a relatively small planter and its still-weak financial profile.

“Its fresh fruit bunch (FFB) production of 152,423 metric tonnes in 2017 is low relative to its milling capacity of about 870,000 metric tonnes per annum,” RAM said in an analysis. “The much larger milling capacity was a deliberate strategy to pursue incremental profits from processing external FFB despite the thin margins.

“As only 24 per cent of processed FFB was sourced internally during the year, its dependence on third-party FFB exposes the Group to competition for FFB within its mills’ vicinity and kept its cost per metric tonne of CPO elevated.

“Nevertheless, the Group’s oil extraction rate, which stood at 22 per cent in FY17, has remained noteworthy and comparable to those of larger regional players.”

As with its industry peers, RAM saw that Chellam Plantations’ productivity has been recovering from the severe after- effects of the El Nino phenomenon in 2015. The Group’s FFB production is envisaged to normalise this year, with the best recovery anticipated from its East Kalimantan estates.

Overall FFB output surged 29 per cent year on year (y-oy) in its financial year ending December 2017 (Fy17) , resulting in improved overall FFB and CPO yields of 11.6 and 2.6 metric tonnes per mature ha, respectively.

Over the medium term, the maturing of its young palms – which makes up 56 per cent of total planted area – to a higher-yielding productive age will support the robust growth of Chellam Plantations’ FFB output.

“In FY17, higher average CPO selling prices and healthier FFB output strengthened the Group’s funds from operations (FFO) debt cover to 0.08 times, albeit still weak,” it said. “By the end of the year, Chellam Plantations’ gearing ratio had inched up to 0.65 times (despite a lower debt level.

“This was due to the translation losses of its Indonesian assets amid the rupiah’s depreciation against the ringgit. Going forward, the group’s gearing ratio is expected to increase to about 0.67 times by endDecember 2018, although still adequate, after a RM5.6 million drawdown on its unrated bonds in the second half of this year, before tapering off as it pares down its debts from fiscal 2019 onwards.

“As its young palms mature and its dependence on external FFB slowly decreases, the group’s FFO debt cover is envisaged to rise above 0.10 times in FY Dec 2018, barring any unexpected capex or acquisition.”