KUALA LUMPUR: IOI Corporation Bhd needs to work out a concrete refinancing plan by September this year for its US$600mil (RM2.49bil) bond, representing around half its reported debt, which has one year left to maturity, Moody’s Investors Service said.
In a statement on Wednesday, it noted IOI Corp’s (Baa2 stable) credit quality will weaken if it is unable to clearly articulate a concrete refinancing plan by September 2021 that would eliminate near-term refinancing risk associated with this large debt maturity.
“IOI’s refinancing strategy is contingent on its investment plans, which are yet to be finalised. The company’s large cash balance, including short-term funds and deposits, comprised RM2bil as of March 31, 2021, with around RM900mil relating to funds earmarked for investments from past asset sales proceeds, ” it said.
Moody’s said the time for the company to use funds earmarked for investments lapses in September 2021.
Therefore, by September, IOI expects to determine the quantum of funds to be raised to refinance its maturing bond, along with any additional funds to be raised if a potential acquisition exceeding RM900mil is identified.
“The company's stable business profile, large cash balance and support from relationship banks should aid refinancing efforts.
“However, a continued lack of a clear plan to address a large maturity in less than 12 months gives rise to increasing refinancing risk. Such a situation, if left unaddressed, will challenge IOI’s Baa2 ratings and stable outlook.
“We estimate that IOI’s internal cash sources will be insufficient to meet its cash needs beyond March 2022, primarily because of its US$600mil bond due June 2022.
“Also, the company’s large cash balance could decline in the coming months if it undertakes a large investment, while not yet having a plan in place to refinance its maturing bond, ” it said.
Nonetheless, Moody’s expects IOI to maintain stable operations.
IOI Corp has an established position as an efficient palm oil producer with integrated operations across the palm oil value chain, a track record of managing profitability through multiple commodity price cycles, and the ability to benefit from the favorable long-term demand for palm oil.
It also pointed out demand for IOI’s palm oil products has remained solid despite the pandemic, and the company’s operations have not been significantly disrupted by periodic movement control restrictions in Malaysia.
Also, the high crude palm oil price has boosted earnings at IOI’s plantation segment in recent quarters, despite lower crude palm oil production amid heavy rainfall and a decline in mature planted hectarage as a result of replanting older trees.