Malaysian conglomerate Teck Guan Holdings (TGH) will become the latest entity to securitize oil palm plantation assets. TGH has secured approval from the Securities Commission for a M$283 million ($77.7 million) Islamic ABS, which will be structured by boutique firm Avenue Securities.
When completed, it will be the first oil palm plantation ABS in 2006. The asset class emerged last year in Malaysia when several companies, including Multi Vest Resources and Boustead Holdings, completed deals (ASR, 09/19/05).
TGH will sell three tranches of Sukuk Al-Ijarah (leasing notes) worth M$200 million to investors, and retain an unrated M$83 million equity tranche.
Under the terms of the transaction, TGH subsidiaries will sell plantation assets to the Dura Palms SPV, which will loan them back and sell bonds backed by lease payments. The subsidiaries have the option of buying back the assets at maturity.
Malaysian Rating Corp. has assigned ratings of AAA' to the M$100 million series A notes, AA' to the M$90 million of B-notes and A' to the M$10 million series C-tranche. Monthly payments will go to repaying principal and interest on the two senior tranches, which have an expected maturity of seven years and a legal maturity of 8.5-years.
The C tranche features bullet notes, with payment scheduled at maturity only after the two senior tranches have been redeemed in full.
Aside from subordination, investor comfort is provided by an unconditional guaranty provided by TGH to ensure the lessees meet their payment obligations.
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