Moody’s cuts Bunge out­look to neg­a­tive af­ter IOI Loders agree­ment

The Star Malaysia - StarBiz - - News -

CHICAGO: Moody’s In­vestors Ser­vice cut its out­look for Bunge Ltd on Wed­nes­day and cau­tioned that with­out much im­proved earn­ings it could cut the US agribusi­ness’ credit rat­ing to just a step above junk sta­tus.

The agency re­vised Bunge’s out­look from sta­ble to neg­a­tive af­ter it opened a US$900mil credit fa­cil­ity to help fund a deal for a con­trol­ling stake in Malaysian palm oil pro­ducer IOI Loders Croklaan.

Moody’s main­tained Bunge’s Baa2 long-term debt rat­ing, but warned that with­out im­proved op­er­at­ing per­for­mance and cash flow, the com­pany risks a down­grade to Baa3, one notch above junk.

Its long-term rat­ings for Bunge ri­vals Archer Daniels Midland Co and Cargill Inc are A2, three steps above Bunge.

De­spite sta­ble credit met­rics in re­cent years, two straight quar­ters of weak re­sults raised con­cern that debt-funded ac­qui­si­tions could weaken Bunge’s credit rat­ing, John Rogers, se­nior vice-pres­i­dent at Moody‘s, said in a re­lease.

Bunge on Tues­day said it struck a deal to buy 70% of IOI Loders Croklaan from par­ent IOI Corp Bhd for US$946mil to ex­pand its higher-mar­gin food in­gre­di­ents busi­ness. The deal came two months af­ter the com­pany an­nounced sweep­ing cost cuts to re­verse slide in prof­its and af­ter re­buff­ing a takeover ap­proach from Glen­core ear­lier this year.

Global grains traders have been seek­ing ways to di­ver­sify and boost earn­ings amid a global grains glut that has dragged down com­mod­ity prices and squeezed op­er­at­ing mar­gins.

Moody’s said its sta­ble rat­ing had been based on the ex­pec­ta­tion that Bunge’s trail­ing four-quar­ter earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­sa­tion, or EBITDA, would be be­tween US$1.6bil and US$1.9bil.

But af­ter a weak first half of 2017, that was likely to fall to US$1.25bilUS$1.45bil, boost­ing the com­pany’s pro forma debt-to-EBITDA ra­tio to 3.5x, Moody’s said.

Rat­ings agen­cies Fitch and S&P Global said Tues­day that their Bunge rat­ings re­main un­changed af­ter the deal, cit­ing ex­pec­ta­tions for an earn­ings turn­around through 2018. S&P said it ex­pects Bunge’s debtto-EBITDA ra­tio by late 2018 to fall be­low the 3x, a crit­i­cal level above which the rat­ings agency could con­sider a down­grade.

Fitch an­tic­i­pates Bunge’s gross lever­age, or debt-to-EBITDA, would re­main above the mid-3x level this year be­fore mod­er­at­ing into 2018 with an an­tic­i­pated re­bound in earn­ings.

Bunge shares were up 1.2% on Wed­nes­day at US$72.29 af­ter tum­bling 5.7% a day ear­lier in the com­pany’s steep­est slide in four months.

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