Fitch expects Sime Darby to clarify revamp in late Feb

In a filing with Bursa Malaysia yesterday, Sime Darby said SDE had on Feb 5 received a notice from the Dubai International Arbitration Centre (DIAC) that EMAS had submitted a request for arbitration against SDE which was filed on Jan 24, 2016. The amount that EMAS is seeking from the arbitration proceedings is AED41.04mil (about RM46.37mil).

KUALA LUMPUR: Fitch Rating expects conglomerate Sime Dabry to provide more clarity about its proposed corporate exercise, which includes the isting of its plantation and property units as standalone entities, by late February 2017.

The ratings agency said on Monday that as for now, the effect Sime Darby's (BBB+/Stable) intended listing of the two units will have on the company's rating remains uncertain.

“The agency will reassess the company's credit profile once further details about its post-listing shareholding and debt structure are available.

“Sime Darby is considering its options, implementation measures and timelines, and is likely to provide more information following its board's review of its half-yearly results in late February 2017,” it said.
 
On Jan 26, Sime Darby announced plans to create plantation and property pure plays to be listed on Bursa Malaysia. 

Recall, the plans are to have the listed entities bearing the Sime Darby brand name and focus on their respective core activities. 

“The company intends to keep its key heavy equipment (industrial) and automotive (motor) dealership businesses and to retain its listed status. 

“However, details regarding proposed shareholdings and debt structures for the various entities are currently unavailable,” it said.

Fitch said it rates Sime Darby based on its consolidated profile. A key rating driver includes the company's diversification and scale from operating across several business lines and geographies. 

“The rating also factors in the company's strong operational and strategic linkages with its key subsidiaries, including the plantation and property divisions, in addition to its ownership of 100% stakes in the subsidiaries. 

“Fitch does not expect Sime Darby's consolidated credit profile to be affected if it retains a majority stake in the plantation and property units upon listing, as this would imply that linkages remain intact,” it said. 

However, Fitch cautioned that should Sime Darby lose its controlling stakes in the units, with the intention of creating independent plantation and property-focused entities with minimal operational or strategic overlap with the remaining business, Sime Darby's cash flows would be significantly reduced.

This in turn would likely see higher earnings volatility, leading to a weaker business profile., it said, adding that it sees a risk to the company's ratings in such a scenario. 

The plantation and property divisions together contributed around 70% of Sime Darby's consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) in the financial year ending June 2016 (FY16). 

The company's consolidated EBITDA declined by around 20% over the three-year period to FY16, however, the drop excluding the plantation and property units was a higher 45%.