Fitch: Sime’s listing plans will likely cause ratings to be uncertain

Malaysian Sime Darby, Japan's Mitsubishi Corporation, Tokyu Land and Hong Kong Land have also signed deals in Jakarta and surrounding areas.

PETALING JAYA: Sime Darby Bhd’s intended listing of the company’s plantation and property units as standalone entities will likely cause its rating to be uncertain, according to Fitch Ratings.

The ratings agency will reassess the company’s credit profile once further details about its post-listing shareholding and debt structure were available.

The conglomerate, which has businesses in automotive distributorships, logistics and the Caterpillar dealership, will provide more information including options, implementation measures and timelines, following a board review of the half-yearly results in late February.

Sime Darby said in late January that there were plans to create plantation and property pure plays to be listed on Bursa Malaysia Securities Bhd.

It said the listed entities would bear the Sime Darby brand name amd focus on their respective core activities. It intends to keep its key heavy equipment (industrial) and automotive dealership businesses and retain its listed status. However, details regarding proposed shareholdings and debt structures for the various entities were unavailable.

Fitch downgraded the company to BBB+ despite a monetisation exercise by the company due to cashflows coming under pressure from a large debt load as well as deteriorating market conditions across its key business segments.

Sime Darby said it deserved a re-rating on its credit status on the basis that it has lowered its gearing to 44% from 57% over the past one year and believes that it could be lowered to 38% with further monetisation and deleveraging activities.

“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 noted.

On that note, Fitch does not expect Sime Darby’s consolidated credit profile to be affected if the company retained a majority stake in the plantation and property units upon listing, as this implied that linkages remained intact.

“However, 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’s cashflows would reduce significantly and it would likely see higher earnings volatility.

“This would lead to a weaker business profile,” said Fitch, foreseeing a risk to the company’s ratings in such a scenario.

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

Fitch noted that 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%.

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