Sime Darby Plantation’s liquidity remains weak despite refinancing
PETALING JAYA: Sime Darby Plantation Bhd’s (SDP) recent large debt refinancing is credit positive for the company, but its liquidity will remain weak as its cash sources will be insufficient to meet scheduled debt maturities, capital spending and dividends through December 2020, said Moody’s Investor Service.
However, the projected cash deficit is primarily driven by its short-term debt maturities, which is expected to continue to be rolled over each year.
SDP had refinanced around RM3.9 billion of credit facilities in December 2019, or around 49% of its total reported debt, which will improve its liquidity and extend debt maturities.
In total, SDP refinanced its US$760 million (RM3.1 billion) foreign currency loans, which previously had a bullet maturity in June 2020, with new amortizing term loans. It also refinanced RM800 million working capital facilitates with new term loans, which have longer maturities.
SDP announced that the new facilities offer slightly lower interest rates than its previous facilities, though specific details were not disclosed.
“Pro forma for the refinancing, we estimate SDP’s short term debt as a proportion of total debt declined to around 28% from 77% as of Sept 30, 2019. SDP’s ability to refinance a large amount of debt is testament to its strong access to funding from domestic and international banks, particularly because of its shareholders with links to the government of Malaysia,” said the rating agency.
As of Sept 30, 2019, Permodalan Nasional Bhd and the Employees Provident Fund held 56% and 14.6% of SDP, respectively.
Moody’s said its projected cash flow from operations (CFO) is based on the high-end of its medium term price assumption range for crude palm oil (CPO) of RM1,900-2,300 per metric ton. CPO prices have increased considerably in recent months following a prolonged decline since 2017.
“Thus, SDP’s projected CFO could be higher than our projections should CPO prices remain at current high levels for a sustained period.”