MARC affirms Sime Darby Islamic debt issues' ratings with negative outlook

KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has affirmed its ratings of MARC-1IS/AAAIS and AAIS on Sime Darby Bhd’s Islamic commercial paper/Islamic medium-term note programme with a combined limit of RM4.5 billion and Perpetual Subordinated Sukuk Programme of up to RM3 billion respectively. The outlook on all ratings is maintained at “negative”.
In a statement yesterday, the rating agency said the negative outlook has taken into consideration the risks and uncertainties associated with Sime Darby’s recently announced plan to create three standalone entities with each separately engaged in the plantation, property, and trading and logistics sectors.
MARC said Sime Darby’s credit quality currently benefits from its diversified risk profile and MARC’s current ratings accord the conglomerate significant credit for scale and a diversified business model.
MARC noted that the steady progress Sime Darby has made to date to strengthen the group’s balance sheet by paring down group borrowings from its combined RM3.9 billion proceeds from asset disposals and share placement as well as by undertaking a RM1.0 billion dividend reinvestment in 2016.
As a consequence, Sime Darby has lowered its debt-to-equity ratio to 0.49 times as at the financial period ended Sept 30, 2016 (1Q17), from FY15’s 0.57 times. The group is expected to continue to reduce its borrowings in the near term through its asset monetisation exercises.
“MARC views the positive outcome of Sime Darby’s deleveraging efforts and strong financial flexibility that remains supported by its key government-linked shareholder, Permodalan Nasional Bhd, as factors that underpin its current ratings,” MARC said.
Notwithstanding any potential change in its funding profile associated with the planned corporate exercise, the rating agency said Sime Darby has a relatively manageable debt maturity profile under the rated programmes with the next scheduled principal repayment of RM300 million due only in December 2022,” said MARC.
For 1Q17, Sime Darby’s consolidated earnings increased by 10.9% year-on-year to RM673 million, supported by disposal gains of RM197 million.
With the sharp increase in crude palm oil price since end-FY2016, MARC said the group’s earnings prospects have improved over the intermediate term, although fresh fruit bunch production may be affected by the plantation division’s ongoing accelerated replanting programme.