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Published: Friday August 17, 2012 MYT 3:36:00 PM

RAM Ratings assigns AA1 to KLK's 10-year RM1b Sukuk


KUALA LUMPUR: RAM Rating Services Bhd has assigned a final long-term rating of AA1 to Kuala Lumpur Kepong Bhd's proposed 10-year multi-currency Islamic medium-term notes programme of up to RM1bil, with a stable outlook.

It said on Friday it had reaffirmed the ratings of the integrated plantation group's existing RM300mil Sukuk Ijarah commercial paper/MTN programme (2011/2016) at AA1/Stable/P1.

RAM Ratings' head of real estate and construction ratings Thong Mun Wai said KLK's ratings were also supported by its resilient balance sheet, strong cashflow-generating ability and healthy liquidity profile.

"Based on recent discussion with management, we understand that the group intends to fully draw down on the Proposed Issue. With the draw down, KLK's debt level is envisaged to increase from RM1.97bil (end-March 2012) to about RM2.70bil for the financial year ended Sept 30, 2012," he said.

Thong added the group's capitalisation and debt coverage ratios were expected to be lower than earlier projected on account of the higher debt level.

"That said, the projected financial metrics are still supportive of its ratings," he added.

KLK's funds from operations debt coverage ratio was projected to range at around 0.45 and 0.50 times between 2012 and 2014 while its gearing ratio was projected to peak at around 0.30 times over the same period. KLK is expected to remain in a near net cash position.

"We deem the group's cashflow-generating ability to be strong; cashflow from operations is expected to amply fund projected capital expenditure. A portion of the RM1bil in proceeds from the proposed issue will be utilised to facilitate an internal restructuring exercise; the group has no immediate plans in respect of the remainder," he said.

However, KLK's ratings are moderated by its ambitious expansion into oleochemicals, an industry vulnerable to high feedstock prices and overcapacity, particularly in basic oleochemicals.

"In this regard, we believe the group's management will take a measured approach and maintain its robust balance sheet. The ratings also factored in inherent risks of the industry including volatile crude palm oil (CPO) prices which largely dictate the bottom-line of oil palm-based companies like KLK," said RAM Ratings.

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