Posted Date: November 21, 2019

MARC has assigned a “Gold” Sustainability Bond Assessment to Agroto Business (M) Sdn Bhd’s (Agroto) proposed ASEAN Sustainability Bond Programme of up to RM300.0 million.

The proceeds of the bonds issued under the proposed bond programme will be used to refinance and finance capital expenditures on the issuer’s sustainable and modern integrated farming operations (“the project’). A key underpinning of the Gold assessment is the expected full allocation of the net proceeds of the sustainability bonds issued under the programme for a project that supports the realisation of long-term integrated visions of sustainable development that are consistent with global sustainability goals, as well as national sustainable development goals and priorities. MARC is of the opinion that the proposed governance structure of the sustainability bond programme, including impact reporting commitments, aligns with the core components of the ASEAN Sustainability Bond Standards, ASEAN Green Bond Standards (ASEAN GBS) and ASEAN Social Bond Standards (ASEAN SBS). The assessment is also supported by the company’s overall effectiveness at managing and embedding sustainability in its operations.

Agroto was established 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 vegetable farming in the highlands of Kinta District, Perak. CH Kinta Valley Sdn Bhd currently owns 60% of the issued share capital of Agroto, with the SADC and CH Kinta Green Valley Sdn Bhd each holding 20% equity stakes.

Agroto’s sustainable farming operations provide a solid platform for its sustainability bond programme; project capital expenditures that will be refinanced/financed would result in clearly identifiable social and environmental benefits. The proceeds of bonds issued under the programme will be allocated solely to the project. The project aligns with the environmentally sustainable management of living natural resources and land use; and food security, respectively recognised green and social project categories under the ASEAN GBS and ASEAN SBS.

In addition to the shared global agenda for long-term sustainability, the project supports national priorities regarding food security and safety, and environmental sustainability as set forth in the Mid-Term Review of the Eleventh Malaysia Plan (11MP) and the country’s revised socioeconomic targets for 2018-2020. Agroto has a strong commitment to sustainability and implements a combination of Controlled Environment Farming (CEF) and conventional open field cultivation (OFC) methods. Agroto’s contract farming model of crop production is supported by the implementation of modern farming techniques and compliance with credible certification standards into which sustainability practices have been codified. At present, Agroto has close to 100 acres of CEF production area, currently accounting for 86% of its total planted acreage. CEF coupled with automation, as is practised by Agroto, enables the sustainable intensification of production with a reduced carbon, land and water footprint. Agroto’s CEF also supports continuous production with consistent quality throughout the year.

Post-financial close, the proceeds from the first tranche of the sustainability bonds will be immediately be used to pay the outstanding principal amount of a loan from Sabah Development Bank and accrued interest, and other identified issuance-related expenses. MARC considers the refinancing nature of the first tranche of issuance to be impactful in that it will facilitate the exit for early stage capital provided by the development bank, freeing up capital that can be recycled into development.

Agroto has provided adequate disclosure of the process by which projects eligible for sustainability bond financing will be selected. Sustainability bond proceeds will be credited to a separately created disbursement account to be solely operated by the bond trustee with post-issuance tracking and reporting on use of proceeds. Throughout the term of the sustainability bond, Agroto has committed to provide annual reporting of the original amounts earmarked for the nominated project, the amounts disbursed, the unutilised amount and where such unutilised amount is placed or invested pending utilisation, and the project’s sustainability impacts on a designated website. Agroto’s environmental policy, environment management frameworks and sustainable farming practices provide a sound base for the identification of material environmental and social (E&S) risks, safeguards and mitigation strategies.

The principal methodology used in this assessment is MARC’s Impact Bond Assessments (IBA) criteria published in July 2018, accessible from MARC’s official website.The assigned Sustainability Bond Assessment is not a credit rating and is independent of the credit quality of the bond concerned. Agroto’s sustainability bond pre-issuance external review report can be accessed here.

Milly Leong, +603-2717 2938/ milly@marc.com.my.