Tuesday, February 8, 2011

MARC keeps rating on Kwantas SPV RM65m debt notes, outlook negative

KUALA LUMPUR: Malaysian Rating Corporation Bhd has reaffirmed the RM65 million debt notes issued Kwantas Corp Bhd's unit but the rating outlook remains negative due to its unprofitable downstream operations in China.

The ratings agency said on Tuesday, Feb 8 Kwantas had reduced production at several of its processing plants in China to curtail losses.

'MARC remains concerned about the relatively weak near-term prospects for Kwantas' refinery and oil processing businesses and the group's continued dependence on short-term borrowings to fund capital expenditure,' it said.

In the statement, MACR said it had affirmed its ratings on Kwantas SPV Sdn Bhd's RM65 million murabahah commercial papers/medium term notes (CP/MTN) at MARC-2 ID(cg)/A- ID(cg).

MARC had affirmed its AAA ID rating on Kwantas SPV's outstanding RM80 million Class A sukuk with a stable outlook.

Concurrently, MARC withdrew its AAA ID and A+ ID ratings on the RM15 million Class B and RM60 million Class C sukuk respectively which had been fully redeemed.

Kwantas SPV is a special purpose company incorporated to issue the sukuk ijarah and CP/MTN programmes.

At transaction close, Kwantas SPV acquired and leased back securitised PLANTATION [] estates to Kwantas related entities for the benefit of sukuk holders and executed murabahah sale and purchase agreements for the benefit of the noteholders. The lessees' obligations under the leases and Kwantas SPV's obligations under the murabahah CP/MTN are guaranteed by Kwantas.

MARC said the affirmed rating of the Class A sukuk is premised on the satisfactory net operating income (NOI) generated by the securitised plantation estates, which remained higher than MARC's assessed sustainable income of the said assets.

The loan-to-value (LTV) ratio for the Class A sukuk remains at 31.4%, reflecting strong collateral backing for the sukuk holders.

The stable outlook incorporates MARC's expectations that the actual performance of the estates will remain within MARC's assessed sustainable NOI.

Meanwhile, the ratings on the murabahah CP/MTN mirror the short- and long-term corporate credit ratings of Kwantas as the guarantor of the notes.

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