RAM: Genting Plantations’ acquisition operationally beneficial

KUALA LUMPUR: Genting Plantations Bhd’s proposed acquisition of about 14,661ha in Indonesia is operationally beneficial although the exercise will weigh on the group’s financial profile in the near term, according to RAM Ratings.

The rating agency said in a statement that there are longerterm benefits to the acquisition although plans to fund it via external financing would put pressure on the group’s financial profile in the near term.

Genting Plantations will be acquiring the entire stake in Knowledge One Investment Pte Ltd, which holds the rights to cultivate the land via its 85% stake in PT Kharisma Inti Usaha.

RAM said the group’s land bank would expand by about 6% to 242,597ha following the acquisition.

The land is also close to the group’s estate in Kalimantan and this will present opportunities for economies of scale and future growth potential.

Contribution from the land, which recorded a profit after tax of about US$1.7mil last year, is expected to be immaterial in the near term.

About 12,893ha of the land have been planted, with about 11,555ha already in the mature phase.

“Apart from cash consideration of US$94.97mil, Genting Plantations will also assume US$71.56mil of loan obligations, which are estimated to raise the group’s gearing and net gearing to a respective 0.69 times and 0.26 times (end-June 2017: 0.54 times and 0.11 times), respectively.

“Further, the group’s funds from operations (FFO) debt coverage is expected to decline to 0.16 times, while FFO net debt cover after considering cash balances and liquid investments will narrow to 0.44 times,” added RAM.

The agency is also commencing an annual review of Genting Plantations’ ratings.