Sime Darby Plantation Bhd’s (SDP) issuer rating has been downgraded by Moody’s Investors Service to Baa2 from Baa1.
The rating house also downgraded the rating on the US$1.5bil senior unsecured medium term note programme of its unit, Sime Darby Global Bhd, to (P)Baa2 from (P)Baa1, and backed senior unsecured debt rating on the sukuk to Baa2 from Baa1. It also revised the outlook on these ratings to stable from negative.
“The downgrade reflects our expectation that Sime Darby Plantation’s earnings growth and pace of debt reduction will remain materially slower than our previous expectations. As a result, SDP’s credit profile is more appropriately positioned at the Baa2 rating level,” said Moody’s assistant vice-president and analyst Maisam Hasnain.
She added that while the group now expects to raise RM1bil from asset sales in 2020 instead of in 2019 as previously planned, Moody’s believes asset sales will be challenging in the current financial market downturn.
Based on Moody’s medium-term price assumptions for crude palm oil of RM2, 100 per tonne, and assuming the group can raise about half the targeted RM1bil from its planned asset sales, Moody’s expects its adjusted leverage will decline to around 3.7 times over the next 12 months from about five times as of December 2019.
Such high leverage levels, it noted, would still not be supportive of its previous Baa1 rating.
Despite the downgrade, the rating house said the group’s credit profile continued to reflect its position as the largest listed palm oil plantation company by plantation area; its integrated operations spanning across the palm oil value chain; and its commitment to adhering to prudent financial policies.
It added that Sime Darby Plantation’s Baa2 rating also assumes that its operations will not be materially disrupted by the Covid-19 pandemic, and as such the current crisis is not a driver of this rating action.
“However, given the uncertainty around the length or magnitude of the outbreak, we will continue to monitor for any potential disruptions to the group’s operations and supply chain which could further pressure its ratings,” added Hasnain.
The rating house said while a ratings upgrade was unlikely over the next 12-18 months, the outlook could change to positive over time if the group improved its credit metrics.
On the other hand, it said ratings could be downgraded if the group’s liquidity deteriorates; its earnings remain weak; it does not reduce its absolute debt levels; or, there are further delays in executing its asset monetisation plans, or if it uses the proceeds for purposes other than debt reduction.
Source The Star