MARC affirms AAA rating on SD Plantation
KUALA LUMPUR: The Malaysian Rating Corporation Bhd ( MARC) has affirmed Sime Darby Plantation Bhd’s ( SD Plantation) corporate credit rating at AAA and the company’s Perpetual Subordinated Sukuk Programme (Perpetual Sukuk) of up to RM3.0 billion at AA-IS.
MARC said SD Plantation had benefited from a one-notch rating uplift for implicit support from its major shareholder Permodalan Nasional Bhd ( PNB).
“The affirmed corporate credit rating was due to SD Plantation’s sizeable and geographically diversified oil palm plantations that support a strong cash flow generating ability to provide a healthy buffer against its financial obligations,” it said in a statement.
MARC said the ratings were moderated by the group’s susceptibility of earnings to crude palm oil (CPO) price movement, although its vertically-integrated business structure provided some mitigation against the impact of CPO price volatility.
“The stable rating outlook reflects MARC’s expectations that the CPO price level would remain above RM2000/metric tonnes over the near-term.
The group’s productivity will also remain supportive of its ability to balance borrowing levels with capital expenditure (capex) requirements for its replanting and new planting activities,” it added.
For the financial year ended June 30, 2018, SD Plantation’s cash flow from operations (CFO) stood at RM2.7 billion, contributing to CFO interest cover of 12.2 times on lower interest costs, in line with the decline in group’s borrowings to RM7.6 billion from about RM8.9 billion in the previous corresponding year.
MARC also expected SD Plantation’s annual cash generation to remain supportive of the group’s capex programme of about RM1.7 billion annually, which includes an estimated RM800 million annually for replanting activities over the next three years to improve its overall tree maturity profile.
“We hope the group continues to maintain its discipline on dividend payout to meet the capex requirement without recourse to borrowings.
“The ongoing capex spending that covers replanting of about five per cent of the total planted area annually is expected to reduce overall average plantation age to 10 years by 2025,” it said.