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Tuesday, October 4, 2022

Launch Partners

Agroto issues world’s first sustainable agricultural Sukuk

Agroto Business (Agroto) issued the world’s first sustainable agricultural Sukuk via the first tranche of its ASEAN sustainability SRI Sukuk under its Islamic medium-term note (IMTN) program of up to RM300 million (US$67.36 million) on the 5th August 2021. With a nominal value of RM200 million (US$44.91 million) issued through a bought deal, it is the first Sukuk issued by the farm produce supplier. The Sukuk will finance and refinance capital expenditures on Agroto’s sustainable and modern integrated farm. The Sukuk received an ‘AA1(bg)’ final rating from RAM Ratings.

“MIDF Amanah Investment Bank believes that the Agroto ASEAN sustainability SRI Sukuk will set a precedent for future issuances in the Malaysian capital market being the first agricultural sustainability Sukuk, and thus supporting Malaysia’s credentials as the world leader for Islamic green and sustainable financing. This landmark transaction evidences the continuous support for sustainable and responsible business practices and is envisioned to be a catalyst for other agriculture-based entities in Malaysia to transition toward a more sustainable business model,” a spokesperson from MIDF Amanah Investment Bank, which acted as the principal advisor for the issuance, said.

Agroto was incorporated in 2012 in partnership with the Perak state government through the Perak State Agricultural Development Corporation (SADC) for the primary purpose of initiating and implementing integrated sustainable farming in the highlands of Kinta District, Perak. The SADC currently holds 20% of its total issued share capital.

The produce supplier plans to increase crop types and production by expanding its controlled environment farming production capacity in phases. A portion of the proceeds from the issuance will be used to restructure its existing bank facility from Sabah Development Bank (SDB). While SDB guaranteed the nominal value of the first tranche issuance, Agroto has a weak stand-alone credit profile. To combat this, it prefunded future profit payments.

“The transaction documents require two profit payments in the first year to be prefunded 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 (of RM15 mil–20 mil (US$3.37–4.49 million)) have also been earmarked as working capital and capital expenditure, thus providing some respite against Agroto’s cash flow constraints. In the past, shareholder support in the form of a capital injection and advances to Agroto had helped ease liquidity woes,” RAM Ratings said in a statement.

Agroto’s credit profile was also tempered by its customer and product concentration risk, with the company’s top five customers contributing to over 70% of its sales in 2020. Similarly, the produce supplier’s top five crops accounted to about 79% of its sales in 2020, according to RAM Ratings.

Agroto has the potential to issue another RM100 million (US$22.45 million) under its IMTN program to fund further eligible sustainable SRI s as defined in its ASEAN sustainability SRI Sukuk framework.

Agroto ASEAN Sustainability SRI Sukuk Tranche 1

RM200 million (US$44.91 million)

5th August 2021
Summary of terms and conditions
Issuer
Agroto Business
Guarantor
Agroto Business
Size of issue
RM200 million (US$44.91 million)
Mode of issue
Bought deal
Purpose
To restructure a term loan and revolving credit facilities extended by Sabah Development Bank in relation to Agroto’s sustainable and modern integrated farming operations, fund working capital as well as capital expenditures in relation to eligible sustainable SRI projects, set up prefunded reserve accounts and pay issuance expenses.
Tenor
Five years
Issuance price
RM200 million
Profit rate
4.8%
Payment
Semi-annual
Currency
Malaysian ringgit
Maturity date
5th August 2026
Lead arranger(s)
MIDF Amanah Investment Bank
Principal advisor(s)
MIDF Amanah Investment Bank
Bookrunner(s)
MIDF Amanah Investment Bank and Alliance Investment Bank
Governing law
Malaysian law
Legal advisor(s)/council
Adnan Sundra & Low
Islamic structure
Murabahah (via Tawarruq arrangement)
Listing
No
Underlying asset
Shariah compliant commodity
Shariah advisor(s)
MIDF Amanah Investment Bank
Rating
‘AA1(bg)/Stable’ by RAM Rating Services
Tradability
Yes

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