[RAM] RAM Ratings assigns AA1(bg) final rating to Agroto's ASEAN Sustainability SRI Sukuk

RAM Ratings has assigned a final rating of AA1(bg)/Stable to the proposed RM200 mil 5-year tranche under Agroto Business (M) Sdn Bhd’s (Agroto or the Company) ASEAN Sustainability SRI Sukuk Programme of up to RM300 mil. In doing so, we have reviewed the relevant final transaction documents. We find them to be in line with our expectations when the preliminary rating was assigned (published on 24 March 2021). The assigned rating reflects an irrevocable and unconditional guarantee from Sabah Development Bank Berhad (rated AA1/Stable/P1), which enhances the rating beyond Agroto’s stand-alone credit fundamentals. 

Agroto is a notable highland vegetable grower in Malaysia, with 101 acres of planted area in Kinta Highlands, Perak. The Company currently meets all the major certification standards in terms of environmental responsibility as well as food safety and handling. It also boasts prominent customers in the retail and F&B sectors while being able to tap the export market. Agroto’s farming operations are further complemented by collection, processing, packing and storage infrastructure. Despite the movement restrictions imposed amid the COVID-19 pandemic, Agroto’s farm has remained fully operational, unlike smaller farmers whose operations had been affected.

Independent of the bank guarantee, Agroto has a weak stand-alone credit profile. The intensely competitive and highly fragmented vegetable production industry, along with the Company’s lack of scale economies, has been exerting immense pressure on its operating performance. This has strained its cashflow, leading to a fragile liquidity position. It only had less than RM1 mil of unrestricted cash reserves as at end-December 2020. Agroto’s credit profile is also tempered by its substantial exposure to customer and product concentration risks.

The transaction documents require two profit payments in the first year to be pre-funded and set aside in the Finance Payment Account, besides the minimum required balance of one profit payment in the Finance Service Reserve Account. Part of the sukuk proceeds have also been earmarked as working capital and capital expenditure, thus providing some respite against Agroto’s cashflow constraints. In the past, shareholder support in the form of a capital injection and advances to Agroto had helped ease liquidity woes. 

Analytical contacts
Amy Lo 
(603) 3385 2509

Thong Mun Wai
(603) 3385 2522