Singapore, October 09, 2019 -- Moody's Investors Service ("Moody's") has affirmed the Baa1 issuer
rating of Sime Darby Plantation Berhad (SDP).
Moody's has also affirmed the (P)Baa1 rating on the $1.5
billion senior unsecured medium-term note programme of its wholly
owned subsidiary, Sime Darby Global Berhad, and the Baa1 backed
senior unsecured debt rating on the sukuk issued by Sime Darby Global
Berhad.
At the same time, Moody's has revised the outlook on these ratings
to negative from stable.
RATINGS RATIONALE
"The change in SDP's ratings outlook to negative reflects our expectation
that its credit metrics will remain weak for its Baa1 ratings over the
next 6-12 months, despite its planned MYR1.0 billion
debt reduction from asset sale proceeds this year," says Maisam
Hasnain, a Moody's Assistant Vice President and Analyst.
Following SDP's weak operating results for the quarter ended June
2019, its adjusted leverage -- as measured by Moody's-adjusted
debt/EBITDA -- increased to around 5.0x as of 30 June 2019
from around 4.0x as of 31 March 2019.
"While the soft 2Q 2019 results were primarily driven by weaker
palm oil prices, the lower earnings and increase in debt mean that
despite its planned MYR1.0 billion debt reduction, SDP's
adjusted leverage will only decline to around 4.0x by the end of
2019," adds Hasnain, also Moody's Lead Analyst
for SDP. "This level of leverage exceeds our previous estimate
of 3.3x and will continue to exceed the 3.5x downward rating
trigger for its Baa1 ratings."
Furthermore, given SDP's elevated leverage, any delays in
executing its asset monetization plans or the use of proceeds for purposes
other than debt reduction would likely result in a negative rating action.
SDP's Baa1 ratings continue to reflect (1) its position as the largest
listed palm oil plantation company by plantation area, and as the
largest global producer of certified sustainable palm oil, and (2)
its integrated operations spanning across the palm oil value chain.
Moody's expects SDP's liquidity profile will remain weak, as its
cash sources will be insufficient to meet scheduled debt maturities,
capital spending and dividends over the next 12 months. SDP's scheduled
debt maturities include $760 million in term loans with a bullet
maturity in June 2020. However, Moody's expects SDP
to proactively refinance these maturities in the coming months.
SDP's refinancing risk is partially offset by its strong access to funding
from domestic and international banks, particularly due to its government
of Malaysia-linked shareholders -- Permodalan Nasional
Berhad (PNB) and Malaysia's Employees Provident Fund.
The rating also considers SDP's exposure to environmental, social
and governance (ESG) risks as follows.
Firstly, the rating considers the increasing stakeholder scrutiny
around environmental and social risks associated with the palm oil sector.
To help mitigate these risks, SDP has continued to strengthen its
sustainability policies. It is the world's largest producer of
certified sustainable palm oil, accounting for around 20%
of global sustainable supply. It is also a founding member of the
Roundtable of Sustainable Palm Oil (RSPO), an association of palm
oil industry stakeholders that promotes the growth and use of sustainable
palm oil products.
Secondly, with respect to governance, while SDP has a concentrated
ownership structure, this is balanced by its listed status,
a publicly stated dividend policy and Moody's view that PNB is a
supportive shareholder. Moody's expects SDP to maintain conservative
financial policies in light of weak palm oil prices, including debt
reduction via asset sales.
The outlook is negative, reflecting Moody's expectation that SDP's
credit metrics will remain weak for its rating over the next 12 months,
despite its planned MYR1.0 billion debt reduction.
A ratings upgrade is unlikely over the next 12-18 months,
given the negative outlook. However, the outlook could return
to stable if SDP improves its credit metrics such that (1) adjusted debt/EBITDA
falls below 3.5x, and (2) adjusted EBITA/interest expense
rises above 3.0x on a sustained basis.
Conversely, SDP's ratings could be downgraded if (1) its earnings
remain weak, (2) it does not reduce its absolute debt levels,
or if (3) there are anydelays in SDP executing its asset monetization
plans or if it uses the proceeds for purposes other than debt reduction.
Credit metrics indicative of a downgrade include (1) adjusted debt/EBITDA
above 3.5x, and (2) adjusted EBITA/interest expense below
3.0x on a sustained basis.
The principal methodology used in these ratings was Protein and Agriculture
published in May 2019. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
Sime Darby Plantation Berhad is an integrated plantation company with
operations spanning across the entire palm oil value chain. It
is also the largest listed oil palm plantation company by planted area.
As of 9 October 2019, SDP was 56% owned by Permodalan Nasional
Berhad (PNB), which is a Malaysian government-linked investment
company, and PNB's subsidiary, Amanah Saham Nasional
Bhd. Another 13% of SDP was owned by Malaysia's Employees
Provident Fund as of the same date.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Maisam Hasnain, CFA
Asst Vice President - 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
Client Service: 852 3551 3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077
