RAM statement on Jan 12

RAM has placed the RM442 million Sukuk Ijarah issued by Golden Crop Returns Bhd on Rating Watch, with a positive outlook.
The rating action follows RAM revision of its long-term price assumption for crude palm oil (CPO) in the rating of commercial-real-estate-backed (CREB) transactions involving oil-palm plantations.
The price assumption has been revised upwards by 16% to RM1,200 per metric tonne (MT), reflecting the change in RAMs outlook on this sector.
This revision has been prompted by the structural changes that have been taking place in the global palm-oil industry over the last two years, which support our view of more stable and robust CPO prices compared to the historical price trends.
With the change in RAMs base CPO price assumption for CREB assets in this sector, there will be a positive rating impact on the sustainable valuation model employed in rating such transactions.
Nonetheless, the significance and extent of the rating change will depend on the performance of the plantation assets relative to their cost management.
In assessing the impact on the ratings, RAM will also take into consideration the respective loan-to-value (LTV) ratios and debt-service coverage ratios required for each rating level.
In reviewing the long-term CPO price assumption used in RAMs valuation model, several key developments affecting global demand for CPO had been taken into consideration: China growing demand for CPO, which is expected to offset some of the negative price effects from India agricultural tariff structure; recent developments and policy trends as well as progress in the production of CPO-based biodiesel vis-à-vis escalating crude-oil prices and alternative edible oils; and " to a smaller extent " greater health awareness concerning the use of harmful trans-fatty acids.
RAM believes that all these factors will help reduce fluctuations in CPO prices and create greater support against adverse movements in commodity prices.