Singapore, December 12, 2014 -- Moody's Investors Service has affirmed the Ba2 Corporate Family
Rating (CFR) of Golden Agri-Resources Ltd (GAR) with a stable outlook.
RATINGS RATIONALE
GAR's stable outlook embodies its long track record of managing
and expanding its plantation operations and the continuing growth of downstream
activities as it creates an integrated palm oil business in order to fully
exploit the value chain.
The stable outlook expects minimal further deterioration in Golden Agri's
credit metrics on the basis that capital expenditure can be cut back in
2015 and that regional crude palm oil (CPO) prices average at least MYR2,240/tonne
or around USD720/tonne (CIF NW Europe). While Moody's says
that GAR can maintain a stable rating under these forward-looking
assumptions, further deterioration of financial ratios would start
to put pressure on the rating. This would include EBITDA/Interest
falling below 4.0-4.5x or retained cash flow (RCF)
to net debt declining below 13%, as well as adjusted debt
to EBITDA surpassing 4.0-4.5x on a sustained basis.
Moody's expects the last ratio to be above this range at year-end
2014, while it expects the first two metrics to be maintained.
"In the last twelve month period to the end of September 2014, Golden-Agri's
adjusted debt/EBITDA has climbed to 4.8x from 3.9x.
While Golden Agri is necessarily carrying more debt to support its downstream
and merchandising operations, weak refining margins, losses
in its Chinese oilseed crushing business during 2014 and weaker CPO prices,
notwithstanding a bouyant Q1, have seen reported EBITDA margins
decline from 10.5% in Q1 2014 to 5.4% in Q3
2014, compared with an EBITDA margin of 10.1% for
2013," notes Alan Greene, a Moody's Vice President -
Senior Credit Officer.
Golden Agri's chief source of cash generation is derived from the
margin it makes from its palm oil plantations. With a total mature
area of 441,000 hectares, including 96,000 hectares
of plasma farms, Golden Agri is the largest plantation company in
Indonesia producing 2.46 million tonnes (mt) of CPO in the 12 months
ended September 2014. However, its EBITDA unavoidably reflects
the selling price of CPO and the resultant margin it makes from its nucleus
palm oil plantation estate and on purchases of fresh fruit bunches from
its plasma famers.
Golden Agri has successfully expanded its downstream refining capacity
in Indonesia and is able to sustain high utilisation rates thanks in large
part to the availability of CPO from its own plantations. Nevertheless,
investment in palm oil refineries has boomed since the changes in Indonesia's
export tax regime in 2011. There is now a surplus of refining capacity
in Indonesia and while some operations may be inefficient and underutilised,
the price spread between palm oil and olein has been tight leading to
thin refining margins. GAR is not a major player in oleochemicals
and only its branded refined products such as cooking oil, which
enjoy a large market share in Indonesia, serve to protect some of
its margin.
Merchandising is the other area of focus of Golden Agri where the company
trades palm oil and its various products, supported by a necessary
storage and logistics infrastructure. The growth of this activity
is seen in the increase in revenue but with a commensurate fall in margin.
At the same time, trading results in a greater use of trade financing
which adds to the overall short-term debt burden of Golden Agri.
Golden Agri's short-term debt was USD1.02 billion
at the end of September compared to USD1.06 billion at the end
of 2013, although much of this is in the form of trade finance lines
which are regularly rolled-over and self liquidate with trade receivables
and inventories. Over the same period inventory had increased to
USD838 million from USD772 million. Its reported long-term
debt of USD1.87 billion as of September 2014 has a good maturity
profile with little more than USD100 million maturing in 2015 and the
bulk, approximately USD1.2 billion falling due in 2017.
However, Golden Agri's USD400 million 2107 convertible bond
could be put in October 2015 as today's SGD0.46 share price
is well under the SGD0.87 conversion price. Moody's
expects GAR to put in place a refinancing plan for this scenario well
ahead of the possible put date.
In 2015, Moody's expects palm oil prices to average MYR2,240/t
which equates to about USD720/t on a CIF Rotterdam basis. This
compares to broader market expectations of USD750/t to USD800/t.
Assuming better weather and an increase in mature area, Golden Agri's
CPO output could increase by 5% or more in 2015. Moody's
expects Golden Agri to generate between USD500 million and USD600 million
of funds from operations in 2015 but accompanied by a sharp cutback in
capex in 2015, compared to the USD519 million spent in 2013,
and with the final figure closer to the USD284 million spent in the first
nine months of 2014. Some of the capex will be spent on completing
the refinery expansion and on constructing a biodiesel plant, with
the remainder supporting estate growth. Moody's notes that
the interim dividend payment for 2014, of around USD40 million,
has been pushed into 2015 and, based on the dividend policy of a
30% payout, we expect a final dividend payment of around
USD20 million. The remaining cash flow is likely to support working
capital swings when CPO prices recover.
"Current pricing pressures in the palm oil industry look set to persist
for a while longer. Although the rate of growth of oil palm output
has eased since September, palm oil stocks in Malaysia for example
increased in November while the average price so far in Q4 is around MYR2,190/t,"
adds Greene who is Lead Analyst for Golden Agri-Resources.
Notwithstanding current difficulties, the future prospects remain
good. Palm oil's status as the vegetable oil with the lowest
cost of production and implementation of biodiesel mandates by Malaysia
and Indonesia should result in a long-term underpinning of the
palm oil price in those countries although vegetable oil prices will continue
to swing depending on the global supply and demand of annual oilseed crops.
GAR is a market leader in palm oil plantations and a key player in the
refining and downstream sectors but it has not yet cemented its ability
to influence margins in the overall palm oil chain.
The rating may experience downward pressure if (1) evidence emerges of
cash leaking from Golden Agri to fund affiliated companies - for
example, through inter-company loans, aggressive cash
dividends, or investments in affiliates; (2) unexpected costs
associated with the expansion of plantations and processing facilities
arise; or (3) CPO prices decline consistently beyond our expectations
and 4) access to trade finance is impaired. Financial metrics indicative
of significant deterioration would include 1) EBITDA/Interest falls below
4.0-4.5x or 2) RCF/Net Debt declines below 13%
to 15% and 3) Adjusted Debt/EBITDA surpasses 4.0-4.5x
all on a sustained basis.
The principal methodology used in this rating was Global Protein and Agriculture
Industry published in May 2013. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
Golden Agri, registered in Mauritius, is the largest listed
oil palm plantation company in Indonesia. Listed on the Singapore
Stock Exchange in 1999, it mainly operates in Indonesia and China
and is 49.95% owned by the Widjaja family.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Alan Greene
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
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Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's affirms Golden Agri's Ba2 rating; stable outlook
