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RAM reaffirms AAA rating of RH Capital's Class A Sukuk Ijarah

August 28, 2014

RAM Ratings has reaffirmed the AAA rating of the RM20 million Class A Sukuk Ijarah (2005/2016) issued by RH Capital Sdn Bhd; the rating has a stable outlook.

RH Capital is a special-purpose vehicle incorporated as the financing conduit for an Islamic sale-and-leaseback transaction, backed by three oil-palm plantations and two palm-oil mills located in Sarawak. The lessees, which are subsidiaries of Tiong Toh Siong Holdings Sdn Bhd (TTS or the Sponsor one of the main holding companies within the Rimbunan Hijau Group), had sold their beneficial interests in the Assets to RH Capital. In turn, RH Capital had leased the Assets back to the respective lessees; the financial obligations under the Sukuk Ijarah are met via lease payments from the lessees.

The rating reflects the superior credit profile of the Sukuk Ijarah due to its robust loan-to-value ratio of 16.24 per cent and corresponding debt service coverage ratio of 5.00 times. The stable outlook reflects our view that the underlying collateral will maintain their performance through the remaining tenure of the transaction; and that our assessed capital value remains intact, supported by the resilient demand for palm-oil assets. We also believe that the lessees will have minimal difficulty in meeting the final principal redemption on a timely basis, supported by internal funds from the Sponsor - as demonstrated in the past.

Overall, the estimated net operating cashflow of RH Capital's 3 estates fell within our sustainable cashflow-assumption of MYR 10 million for 2013. We note that the estates' average FFB yield edged up from 13.3 MT/ha to 13.6 MT/ha last year. Higher estate costs following the implementation of minimum wages had been compensated by stronger FFB production, as more of the young trees had progressed into the matured phase. The oil mills had also kept up their stable oil-extraction and kernel-extraction rates compared to previous year. To date, the lessees have been able to promptly and fully meet the payments on their scheduled lease obligations, in turn allowing RH Capital to fulfil its commitments.

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Source: CPI Financial

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