KUALA LUMPUR: Moody’s Investors Service has downgraded the issuer rating of Sime Darby Plantation Bhd (SD Plantation) to Baa2 from Baa1.
The rating agency said the downgrade was on the US$1.5 billion senior unsecured medium-term note programme of its SD Plantation’s subsidiary, Sime Darby Global Bhd to (P)Baa2 from (P)Baa1, and backed senior unsecured debt rating on the sukuk issued by Sime Darby Global to Baa2 from Baa1.
Moody’s said the revision on the outlook on the rating was stable from negative.
“The downgrade reflects our expectation that SD Plantation’s earnings growth and pace of debt reduction will remain materially slower than our previous expectations,” said Moody's Assistant vice president and analyst Maisam Hasnain.
He said the SD Plantation’s credit profile is more appropriately positioned at the Baa2 rating level.
He added that SDP expected to raise RM1.0 billion in 2020 from asset sales, as opposed to its previous expectation of raising these funds in 2019.
“We believe asset sales will be challenging in the current financial market downturn,” he said.
Moody’s also expected SD Plantation’s adjusted leverage will decline to around 3.7 times over the next 12 months from around 5.0 times as of December 2019 on premise of assumptions for crude palm oil of RM2,100 per metric ton and assuming SD Plantation can raise around half of the targeted RM1.0 billion in proceeds from its planned asset sales.
Moody’s said SD Plantation’s credit profile continues to reflect its position as the largest listed palm oil plantation company by plantation area, and the largest global producer of certified sustainable palm oil.
The plantation company also has its integrated operations spanning across the palm oil value chain; and its commitment to adhering to prudent financial policies, including leverage reduction.
SD Plantation’s Baa2 rating also assumes that its operations will not be materially disrupted by the coronavirus outbreak, and as such the current crisis is not a driver of this rating action.
Aside from the temporary and limited closure of some plantation estates and crude palm oil mills in Sabah, Malaysia, SD Plantation's operations across Asia, Europe and Africa have not been materially affected.
Moody's considers such impacts are currently manageable within the company's ratings and stable outlook.
“However, given the uncertainty around the length or magnitude of the outbreak, we will continue to monitor for any potential disruptions to SDP's operations and supply chain which could further pressure its ratings,” said Hasnain.
Moody's also expected SD Plantation’s liquidity over the next 12-15 months will remain weak due to its cash balance as of December 31, 2019 and projected operating cash flow will be insufficient to meet scheduled debt maturities, capital spending and dividends.
However, refinancing risk is partially offset by its strong access to funding from domestic and international banks, particularly due to its government of Malaysia-linked shareholders -- Permodalan Nasional Bhd and Malaysia's Employees Provident Fund.