MARC affirms Sime Darby Plantation’s rating at AAA


The rating agency said the affirmed corporate credit rating was due to SD Plantation’s strong cash flow generating ability from its sizeable, geographically-diversified and integrated oil palm operations.

KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has affirmed Sime Darby Plantation Bhd’s (SD Plantation) corporate credit rating at AAA, and its perpetual subordinated sukuk programme (perpetual sukuk) of up to RM3bil at AAIS. The ratings outlook is stable.

The rating agency said the affirmed corporate credit rating was due to SD Plantation’s strong cash flow generating ability from its sizeable, geographically-diversified and integrated oil palm operations.

“The key moderating factor is the susceptibility of the group’s performance to crude palm oil (CPO) price movement, which in recent years has exerted pressure on its financial metrics.

“The rating benefits from a notch uplift for implicit support from parent Permodalan Nasional Bhd, a government-linked investment company that has historically extended support to the plantation company, ” the rating agency said.

MARC said SD Plantation is one of the largest palm oil plantation groups globally with significant upstream operations in Malaysia, Indonesia, Papua New Guinea and Solomon Islands and sizeable downstream operations domestically and in the Netherlands, the UK, South Africa, Indonesia and Thailand, among others.The impending exit from Liberia where SD Plantation has 10,263 ha or 1.7% of total planted area of 603,146 ha is regarded as not material to the group’s operations.

Given the group had faced considerable challenges in Liberia since beginning operations there, the full divestment of its loss-making Liberian operations would strengthen its focus on its key Malaysian and Indonesian plantations.

It pointed out that SD Plantation’s accelerated replanting programme since 2015, particularly in Indonesia, has led to an overall improvement in its plantation maturity profile: around 30% of its oil palms are currently in the prime maturity stage (aged nine to 18 years) with an average palm tree age of 12.1 years as at end-9M2019.

About RM700mil per annum of an expected capex spending of RM1.5bil per annum over the next three years has been earmarked for replanting activities, notwithstanding the challenging CPO price environment.

During 9M2019, SD Plantation recorded lower average CPO price of RM2,007 for its continuing operations, leading to lower revenue of RM8.7bil (9M2018: RM2,322; RM9.8bil).

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