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Rating Action:

Moody's reviews IOI Corporation Berhad's Baa2 ratings for downgrade

Global Credit Research - 10 May 2016

Singapore, May 10, 2016 -- Moody's Investors Service (Moody's) has today placed on review for downgrade the Baa2 issuer rating of IOI Corporation Berhad (IOI), Baa2 senior unsecured bond rating of IOI Investment (L) Berhad, and Baa2 senior unsecured bank credit facility rating of IOI Ventures (L) Berhad.

The (P)Baa2 senior unsecured medium-term note (MTN) program rating of IOI Investment (L) Berhad has also been placed on review for downgrade.

LIST OF AFFECTED RATINGS

On Review for Downgrade:

..Issuer: IOI Corporation Berhad

....Issuer Rating, Placed on Review for Downgrade, currently Baa2

..Issuer: IOI Investment (L) Berhad

....Backed Senior Unsecured Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Baa2

....Backed Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

..Issuer: IOI Ventures (L) Berhad

....Backed Senior Unsecured Bank Credit Facility, Placed on Review for Downgrade, currently Baa2

Outlook Actions:

..Issuer: IOI Corporation Berhad

....Outlook, Changed To Rating Under Review From Negative

..Issuer: IOI Investment (L) Berhad

....Outlook, Changed To Rating Under Review From Negative

..Issuer: IOI Ventures (L) Berhad

....Outlook, Changed To Rating Under Review From Negative

RATINGS RATIONALE

"The review for downgrade was driven by uncertainty regarding IOI's operating performance, particularly on its downstream business, after its entire oil palm production was suspended by the Roundtable on Sustainable Palm Oil (RSPO) and the resultant announcement by several of its customers to cease cooperation with the company," says Jacintha Poh, a Moody's Vice President and Senior Analyst.

Effective 4 April 2016, RSPO has suspended the certification for all of IOI's oil palm production after receiving complaints by a non-governmental organization on non-compliance of IOI's Indonesia plantation -- which produced approximately 2% of the company's annual crude palm oil (CPO) production -- with various RSPO Principles and Criteria and requirements.

Unilever PLC (A1 stable), Kellogg Company (Baa2 stable), Mars Inc (unrated), and Nestle S.A. (Aa2 stable) announced that they would not cooperate with IOI, with Unilever and Kellogg setting a period of three-months to implement an exit process.

IOI has submitted an action plan to RSPO, which it believes will help resolve the complaints.

However, the time frame for the resolution remains uncertain and Moody's notes that some plantation companies have required more than a year to satisfy RSPO's complaints.

"While potential sales losses from IOI's inability to supply certified palm oil are not quantifiable at this point due to ongoing developments with RSPO and its customers, we note that the company's earnings could deteriorate significantly, which could in turn pressure its financial metrics, if the suspension is not resolved within a year," says Poh.

In such scenarios, Moody's expects IOI's downstream business to be severely impacted, particularly for customers in Europe and the USA, who might switch to other suppliers in order to comply with their policies on environmental sustainability.

As this is IOI's second suspension within a five-year timeframe, Moody's also expects IOI to suffer reputational damage, which may result in a further loss of customers.

Nonetheless, Moody's expects IOI's operating profit for its fiscal year ending 30 June 2016 (FY2016) to remain broadly stable, supported by an expectation that the company will benefit from a higher average CPO price in 2H FY2016 and the assumption that it had accumulated a sufficient amount of inventory before the suspension date to continue producing RSPO-certified products in 4Q FY2016 for its existing customers.

According to the Malaysian Palm Oil Board, the average CPO price was at MYR2,413 per ton in 1Q 2016 as compared to an average of MYR2,179 per ton recorded in 2H 2015.

The review will focus on IOI's (1) measures to resolve its suspension by RSPO on a timely basis; (2) strategy to manage its business with the ability to retain its customers during the suspension period; (3) continued maintenance of a sizeable liquid assets base; and (4) pro-active refinancing of its short-term debt maturities.

Moody's expects IOI's earnings and profitability will deteriorate, resulting in a weakening of its financial profile such that leverage will exceed its current ratings threshold of 4.0x, if the suspension is not resolved swiftly.

The principal methodology used in these ratings was Global Protein and Agriculture Industry published in May 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

IOI Corporation Berhad is headquartered in Malaysia and listed on Bursa Securities Malaysia. It is approximately 47%-owned by the founding Lee family, as of 10 May 2016. The company is involved in oil palm plantations and resource-based manufacturing, including oleo-chemicals, as well as specialty oils and fats. As of 31 December 2015, it had around 180,000 hectares of oil palm plantation.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Jacintha Poh
Vice President - Senior Analyst
Corporate Finance Group
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

Laura Acres
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 reviews IOI Corporation Berhad's Baa2 ratings for downgrade
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