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02 Mar 2009
Approximately US$500 million of bonds and Yen 21 billion of loans affected
Hong Kong, March 02, 2009 -- Moody's Investors Service has changed IOI Corporation Berhad's ("IOI")
outlook to negative from stable for its Baa1 issuer rating. At
the same time, the outlook for the Baa1 senior unsecured bonds and
loans issued by IOI Ventures (L) Berhad, which are guaranteed by
IOI, have been revised to negative from stable.
"The rating action has been driven by IOI's recently reported
weaker profitability which is mainly the result of higher than expected
foreign exchange losses and customer defaults amid declining crude palm
oil prices," says Peter Choy a Moody's Vice President and
Senior Credit Officer.
"These losses have prompted Moody's concerns over weakness
in the company's internal management system especially in effectively
controlling its foreign exchange exposure," says Choy.
"In addition, the outlooks for IOI's two major business
lines --- resource based manufacturing and real estate development
-- are expected to remain challenging over the next 12 months
which may continue to pressure its profitability," he adds.
IOI's current ratings are supported by the favourable long-term
outlook for palm oil demand; position as a global top-tier
palm oil producer and efficient operations; good access to capital
and bank markets as well as management's good track record in managing
the palm oil business throughout the business cycle. IOI's
strong liquidity is also supportive of its current rating.
At the same time IOI's ratings are tempered by the commodity nature
and cyclicality pricing character of palm oil; cyclicality of its
property business; and track record of aggressive financial management
in capital distribution, debt incurrence and share buy-back
to maximize shareholder return.
Downgrade pressure on IOI could emerge if (1) pressure on its downstream
operation margin continues resulting in protracted weakness in profitability,
such that EBITDA margin remains below 19%; (2) weaker palm
oil production from some of its aging plantations results in a material
reduction in the profitability of its plantation segment; (3) ownership
by IOI Properties Berhad, IOI Oleochemical Industries Bhd and Loders
Croklaan Group BV declines to less than 50%, such that it
loses management control; and/or (4) aggressive acquisitions occur
which do not generate satisfactory returns, and raise overall risk
profile such that EBITDA/gross interest falls below 6x -- 7.0x
and Debt/EBITDA exceeds 3.0x -3.5x.
The outlook could return to stable if IOI can demonstrate effective internal
measures to minimize its foreign exchange risks and bad debt losses,
as well as generate positive free cash flow to reduce its debt leverage
such that its Debt/EBITDA is not exceeding 2.5-2.75x.
The last rating action with regard to IOI was taken on 2 December,
2008, when the company's issuer and debt ratings were downgraded
from A3 to Baa1.
IOI's ratings have been assigned based on factors that Moody's
believe are relevant to the risk profile of IOI, such as the company's
(i) business risk and competitive position compared with other firms within
the industry; (iii) capital structure and financial risk; (iii)
projected performance over the near to intermediate term; and (iv)
management's track record and tolerance for risk. These attributes
were compared against other issuers both within and outside IOI's
core industry; IOI's ratings are believed to be comparable
to those of other issuers of similar credit risk.
IOI Corporation Berhad is headquartered in Malaysia and listed on Bursa
Securities Malaysia. The company is involved in oil palm plantations
and resource-based manufacturing, including olechemicals,
as well as specialty oils and fats. It is also a property development
and investment group.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Moody's changes IOI's Baa1 ratings to negative
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308
No Related Data.
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