Genting Plantations’ ratings stable credit metrics

KUCHING: RAM Ratings has reaffirmed the AA2/ Stable/ P1 corporate credit ratings of Genting Plantations Bhd (Genting Plantations), along with the AA2(s)/Stable rating of the RM1.5 billion Sukuk Murabahah Programme (2015/2030) issued by the group’s wholly owned funding conduit, Benih Restu Bhd.

The reaffirmation is premised on RAM’s opinion that the group’s credit metrics will remain supportive of its ratings, with its hefty debt load sufficiently mitigated by robust cash reserves.

“Operationally, the group’s production of fresh fruit bunches (FFB) rose a respective 17 and 12 per cent in financial year 2017 ( FY17) and the first half ( 1H) of FY18, underscored by yield recovery amid the dissipating El Nino effects and the expansion of newly matured areas for its young Indonesian estates,” it said.

“The stronger productivity was, however, negated by weaker crude palm oil (CPO) prices, leading to a 10 per cent year on year (y-o-y) decline in its operating profit before depreciation, interest and tax in 1HFY18.”

Coupled with a hefty debt load of RM2.86 billion as at end-June 2018, RAM saw that the group’s financial metrics came in weaker, but are expected to recover amid stronger production and slightly better CPO prices, as well as its enlarged cash buffer from the proceeds of its warrant conversion.

Genting Plantations’ cash coffers stand to be boosted by the proceeds from the exercise of its warrants that are mostly held by its parent, Genting Bhd, by mid-2019 as they are in-the-money and will expire next June.

The warrant conversions are likely so that Genting can avoid the dilution of its shareholding in the Group and given Genting Plantations’ future earnings growth, RAM said.

“Assuming that just half of the warrants will be exercised, the group’s net gearing ratio will dip below 0.20 times next year while its funds from operations (FFO) net debt cover will come up to at least 0.60 times.

The group’s ratings continue to reflect its established position and geographically diversified operations. Genting Plantations’ CPO yield of 3.8 to 4.3 MT per mature hectare in the last three years still stacks up favourably against those of its big regional peers with similar tree profiles, backed by its strong plantation management.