Fitch affirms Sime Plantation’s ‘BBB+’ rating and stable outlook

KUALA LUMPUR: Fitch Ratings has affirmed Sime Darby Plantation Bhd’s (Sime Plantation) long-term foreign currency issuer default rating (IDR) at “BBB+” with a “stable” outlook.

The ratings agency has also affirmed its senior unsecured rating and its US$1.5 billion (RM6.28 billion) sukuk programme and the outstanding issuance under the programme at “BBB+”.

The key drivers for the rating include funds from operations (FFO) adjusted net leverage, which fell to 3.2 times by the end of the 2018 financial year (ended in June 30) from 3.7 times in the 2017 financial year, better than Fitch’s expectation of 3.5 times. This was due to the company fetching higher prices for the land it sold than forecast.

Fitch expects Sime Plantation to dispose of more land parcels over the next 24 months, supporting its deleveraging expectation towards FFO adjusted net leverage of below 2.5 times by the 2020 financial year.

In addition, Fitch said Sime Plantation’s rating reflects its position as the world’s largest palmoil producer by planted area, diversified plantation locations and operating integration, which allows optimum profit retention.

More than 70 per cent of its revenue is derived from refined palm oil products, and it sources most of its crude palm oil feedstock from its own plantations.

Fitch believes demand for refined oil is less volatile than crude oil.