FITCH AFFIRMS SIME DARBY PLANTATION AT BBB+ WITH OUTLOOK STABLE

KUALA LUMPUR, Nov 15 (Bernama) -- Fitch Ratings has affirmed palm-oil producer Sime Darby Plantation Bhd’s (SDP) Long-Term Foreign-Currency Issuer Default Rating at BBB+ with a stable outlook and its senior unsecured rating at BBB+.

At the same time, the ratings agency also affirmed SDP's US$1.5 billion sukuk programme and the outstanding issuance under the programme at BBB+.

“SDP's funds from operations (FFO) adjusted net leverage fell to 3.2 times by the end of the financial year 2018 (FY18) from 3.7x in FY17, better than our expectation of 3.5 times due to the company fetching higher prices for the land than our forecast.

“We expect SDP to dispose of more land parcels over the next 24 months, supporting our deleveraging expectation towards FFO adjusted net leverage of below 2.5x by FY20 (FY19: 3.0 times; FY20: 2.4 times),” it said in a statement today.

Fitch said a delay in land sales or values lower than its assumptions may slow the deleveraging process although the risk was counterbalanced by the company’s commitment to deleverage and the other measures it could use to manage its capital structure, including asset disposals and a dividend reinvestment plan.

“For its scale and diversification, SDP’s rating reflects its position as the world’s largest palm oil producer by planted area, diversified plantation locations and operating integration, which allows optimum profit retention,” it said.

SDP’s total planted area was around 600,000 hectares as at June 30, 2018, with an annual fresh fruit bunch production of over 10 million tonnes from its operations in Malaysia, Indonesia, Papua New Guinea, Solomon Islands and Liberia.

“More than 70 per cent of SDP's revenue is from refined palm-oil products, and it sources the majority of its crude palm oil (CPO) feedstock from its own plantations. We believe demand for refined oil is less volatile than crude oil as most of it is driven primarily by users.

“SDP’s diversified plantation operations also mitigate the risk from adverse weather, which may affect plantation productivity, as well as country-specific regulatory risks,” it said.

As the world's largest certified palm-oil producer, Fitch said that SDP benefited from the increasing awareness of sustainable palm oil and the strict adherence required from multinationals or from customers from developed countries.

“The European market is phasing out the use of palm oil in biodiesel and is committing to 100 per cent certified sustainable palm oil usage by 2020.

“We believes the industry's long-term outlook remains favourable, driven by consumption growth in emerging markets, CPO's competitive advantage as the cheapest source of edible oil, and limited new plantings in Malaysia and Indonesia constraining supply,” it said.

On SDP’s liquidity and debt structure, Fitch believed the palm oil producer would be able to comfortably meet its debt servicing based on its expectation of robust internal cash flow generation and proceeds from asset disposals. 

“As at end FY18, SDP has RM363 million in cash and cash equivalents against current portion of long-term debt totalling RM526 million. 

“SDP also has sizeable committed undrawn working capital lines of RM1.6 billion, as well as remaining undrawn limits under its perpetual sukuk and US dollar sukuk totalling RM3.7 billion, which it can utilise if necessary,” it added. 

-- BERNAMA