Fitch: Sime Darby likely to clarify structure in late February

KUCHING: The effect Sime Darby Berhad’s ( Sime Darby) intended listing of its plantation and property units as standalone entities will have on the company’s rating remains uncertain, says Fitch Ratings.

The agency will reassess the company’s credit profile once further details about its postlisting shareholding and debt structure are available.

“Sime Darby is considering its options, implementation measures and timelines, and is likely to provide more information following its board’s review of its half-yearly results in late February 2017,” it opined in a statement yesterday.

Sime Darby on January 26 announced its plans to create plantation and property pure plays to be listed on Bursa Malaysia. The listed entities will bear the Sime Darby brand name and focus on their respective core activities.

“The company intends to keep its key heavy equipment ( industrial) and automotive ( motor) dealership businesses and to retain its listed status. However, details regarding proposed shareholdings and debt structures for the various entities are currently unavailable.”

As Fitch rates Sime Darby based on its consolidated profile, a key rating driver includes the company’s diversification and scale from operating across several business lines and geographies.

The rating also factors in the company’s strong operational and strategic linkages with its key subsidiaries, including the plantation and property divisions, in addition to its ownership of 100 per cent stakes in the subsidiaries.

“Fitch does not expect Sime Darby’s consolidated credit profile to be affected if it retains a majority stake in the plantation and property units upon listing, as this would imply that linkages remain intact,” it said.

“However, should Sime Darby lose its controlling stakes in the units, with the intention of creating independent plantation and property- focused entities with minimal operational or strategic overlap with the remaining business, Sime Darby’s cash flows would be significantly reduced and it would likely see higher earnings volatility, leading to a weaker business profile.

“Fitch sees a risk to the company’s ratings in such a scenario.”

The plantation and property divisions together contributed around 70 per cent of Sime Darby’s consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) in the financial year ending June 2016 (FY16).

The company’s consolidated EBITDA declined by around 20 per cent over the three-year period to FY16, however, the drop excluding the plantation and property units was a higher 45 per cent.