KUALA LUMPUR: Genting Plantations Bhd's unit plans to issue RM1.5bil 15-year Sukuk programme (2013/18) and RAM Rating Services Bhd has assigned an enhanced long-term rating of AA2(s) (with a stable outlook).
RAM Ratings said on Wednesday that concurrently, it reaffirmed the respective long- and short-term corporate credit ratings of its parent, Genting Plantations at AA2/stable/P1.
Below is the statement issued by the ratings agency:
RAM Ratings has assigned an enhanced long-term rating of AA2(s) (with a stable outlook) to Benih Restu Berhad's ("Benih Restu" or "the SPV") proposed RM1.5 billion 15-year Sukuk Programme (2013/2028) ("the proposed Sukuk").
Concurrently, we have reaffirmed the respective long- and short-term corporate credit ratings of its parent, Genting Plantations Berhad ("Genting Plantations" or "the Group"), at AA2/stable/P1.
A wholly-owned subsidiary of Genting Plantations, Benih Restu will facilitate the issuance of the proposed Sukuk, which is backed by an irrevocable and unconditional guarantee from the former. Therefore, the enhanced issue rating reflects the credit profile of the Group.
Genting Plantations principally cultivates oil palm. The Group has 22 estates across Peninsular Malaysia and Sabah, and 8 joint ventures in Indonesia, with a combined planted area of 119,779 ha. It currently spearheads the plantation business of Genting Berhad (rated AAA/Stable/P1 by RAM), its major shareholder with a 54.6% stake. Elsewhere, the Group is also involved in property development and biotechnology.
Genting Plantations' ratings continue to be supported by its strong balance sheet, as demonstrated by its net cash position over the past decade. Further, the Group's fresh fruit bunch and Crude Palm Oil ("CPO") yields remain healthy, above the Malaysian industry average.
Genting Plantations also derives substantial financial flexibility from its vast unencumbered land bank.
Nonetheless, the Group's credit profile is moderated by its elevated production cost due to lower palm kernel credit and higher input cost (i.e. labour and fertiliser) in Malaysia.
Further, with about half of its planted area in Indonesia, Genting Plantations is deemed to operate in a more challenging environment than planters who operate solely in Malaysia.
That said, we observe that Indonesian players record stronger oil extraction rates owing to better planting materials and milling technology. We also note that Genting Plantations has had 2 mills operational in the republic since late-2012 and early-2013, respectively.
Coupled with its maturing plantations, we envisage the Group's Indonesia operation turning profitable by end-2013. As with other plantations players, Genting Plantations is exposed to the cyclical nature of the palm oil industry which witnesses volatile price swings.
Moving forward, the Group's financials are envisaged to be dictated by an increasingly challenging operating environment, with movement of palm product prices continuing to impact its performance.
Nonetheless, some comfort can be derived from Genting Plantations' ability to maintain respectable profit margins in the past 30 years, even during periods of low prices. Over the next 3 years, its gearing ratio is expected to peak at about 0.5 times as it continues to expand in Indonesia.
While Genting Plantations' operating cashflow debt coverage is envisaged to moderate further with an expected increased debt load, its debt coverage ratio on a net debt basis is expected to remain robust at over 1 time over the next 3 years.