Genting Plantations’ proposed acquisition operationally positive, but weighs on financial profile
KUCHING: RAM Ratings views Genting Plantations Bhd’s ( Genting Plantations) proposed acquisition of approximately 14,661 hectares ( ha) of plantation land in Indonesia as being operationally beneficial, although the exercise will weigh on the group’s financial profile in the near term.
Genting Plantations will be acquiring a 100 per cent equity interest in Knowledge One Investment Pte Ltd ( KOI). Through its 85 per cent stake in PT Kharisma Inti Usaha, KOI holds the rights to cultivate the abovementioned land.
The planned acquisition will expand the group’s land bank by about 6 per cent to 242,597 ha.
“With a profit after tax of about US$ 1.70 million last year, the contribution from the acquired land is expected to be immaterial in the near term.
“Nevertheless, the land is in close proximity to the Group’s estates in Kalimantan, thus presenting opportunities for economies of scale and growth potential in the longer run,” RAM said in a statement yesterday.
About 12,893 ha of the land to be acquired has already been planted on; of this, 11,555 ha has entered the mature phase.
However, RAM forewarned that the plan to fund the proposed acquisition via external financing is anticipated to exert pressure on the group’s financial profile in the near term.
“Apart from cash consideration of US$ 94.97 million, Genting Plantations will also assume US$ 71.56 million 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).
“Furthermore, 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 (1H FY Dec 2017: annualised ratios of 0.21 times and 1.08 times).”
RAM is commencing the annual review of Genting Plantations’ ratings.
“Genting Plantations carries corporate credit ratings of AA2/ Stable/P1 while the RM1.5 billion Sukuk Murabahah Programme (2015/2030) issued via its funding vehicle, Benih Restu Berhad, is rated AA2(s)/Stable.
“As the sukuk programme is backed by an irrevocable and unconditional corporate guarantee from Genting Plantations, the enhanced issue rating reflects the credit profile of the group.”