MIDF Research said Sime Darby registered the highest net money inflow of RM25.37mil last week
KUALA LUMPUR: Moody's Investors Service has affirmed the Baa1 issuer rating of Sime Darby Plantation
Sdn Bhd (SDP).
The ratings agency had on Friday confirmed the (P)Baa1 rating on the US$1.5bil senior unsecured medium-term note programme of Sime Darby Global Bhd and the Baa1 senior unsecured debt rating on the sukuk issued by Sime Darby Global Bhd.The ratings outlook is stable.
It said the rating action on Sime Darby Global concludes the review for downgrade initiated on 3 February 2017, after its previous obligor, Sime Darby Bhd (Baa1 under review for downgrade) announced plans to demerge and list its plantation and property businesses separately on Bursa
Malaysia.
On May 23, 2017, Sime Darby Bhd announced: (1) completion of the cash repurchase of US$627.9mil sukuk, out of US$800mil, issued by Sime Darby Global Bhd; and (2) novation of the remaining US$172.1mil sukuk of which US$49.6mil is due 2018 and US$122.5mil due 2023, and change in obligor from Sime Darby Bhd to SDP.
The cash repurchase of the tendered sukuk was funded by a US$430mil bridge facility at SDP's level and with cash balances of Sime Darby Bhd. Hence, the amount of debt allocated to SDP totaled approximately US$600mil.
"The affirmation of SDP's Baa1 ratings reflects that the debt allocation on the US dollar sukuk and the drawdown of bridge financing remains in line with our expectation, such that the company is on track to achieve improvement in its financial metrics over the next 12-18 months," says Jacintha Poh, a Moody's vice president and senior analyst.
Moody's expects SDP's total adjusted debt will reach around RM9.5bil to RM10.2bil in the financial year ending June 30, 2017 (FY2017) and FY2018, down from around RM14.2bil in FY2016.
Consequently, SDP's adjusted debt/Ebitda should improve to around 3.0 times from 6.2x in FY2016, and adjusted Ebitda /interest expense to around 3.5 times from 2.1 times, over the next 12-18 months.
"The confirmation of Sime Darby Global Bhd's ratings follows the successful change in its obligor, such that it is now a wholly-owned subsidiary of SDP, instead of Sime Darby Bhd," Poh said.
The rating outlook is stable, reflecting Moody's expectation that SDP will successfully term out the US$430mil bridge financing and the management will maintain a prudent and conservative approach towards further investments, as the company pursues growth.
A rating upgrade is unlikely over the near to medium term, but positive momentum could build if SDP successfully executes its business plans and grows its scale, generates strong positive operating cash flows, and demonstrates sustained improvement in its financial profile, such that
cash flows from operations/net debt rises above 35%-40%, adjusted debt/Ebitda falls below 2.0 times, and Ebitda/interest expense rises above 6.0 times.
However, Moody's said SDP's rating could face downward pressure if: (1) the company fails to implement its business plan, such that its financial profile differs from Moody's expectation; and/or (2) there is a deterioration in palm oil prices, leading to protracted weakness in SDP's operations and credit profile.
Moody's considers adjusted debt/Ebitda above 3.5 times and adjusted Ebitda/interest expense below three times, on a sustained basis, as indications that a rating downgrade could be necessary.
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