Published on 19 Dec 2019.
RAM Ratings has reaffirmed the AA2/Stable/P1 corporate credit ratings of Genting Plantations Berhad (the Group) and the AA2(s)/Stable rating of the RM1.5 bil Sukuk Murabahah Programme (2015/2030) under the Group’s wholly owned funding conduit, Benih Restu Berhad. The reaffirmation is premised on our view that the Group’s credit metrics will remain supportive of its ratings, anchored by its sturdy balance sheet.
Operationally, the Group’s production of fresh fruit bunches (FFB) rose 11% in both FY Dec 2018 and 1H FY Dec 2019. Stronger output from its young and progressively maturing Indonesian estates had offset lower domestic production. Nevertheless, weaker CPO prices (FY Dec 2018: -22%; 1H FY Dec 2019: -16%) pushed its operating profit before depreciation, interest and tax down a respective 29% and 19%. Looking ahead, Genting Plantations’ earnings are expected to recover next year, propped up by continued production growth and healthier CPO prices.
Notably, a lower debt level last year (-13%) and sizeable conversions of outstanding warrants in June 2019 have strengthened Genting Plantations’ financial position. Its gearing and net gearing ratios had eased to a respective 0.54 and 0.16 times as at end-June 2019 (end-June 2018: 0.65 and 0.28 times). With its operational cashflow covering its capex needs, the Group’s debts are anticipated to stay mostly stable, with a net gearing of below 0.20 times through the next few years. Despite its weaker profit performance, enlarged cash coffers from the aforementioned warrant conversion lifted its annualised funds from operations (FFO) net debt cover to 0.45 times in 1H FY Dec 2019 (1H FY Dec 2018: 0.34 times, annualised). Given the envisaged improvement in profitability over the next couple of years, Genting Plantations’ FFO debt cover is projected to hover around 0.20 times while its FFO net debt cover will come up to a comfortable 0.50-0.60 times.
Meanwhile, the Group’s ratings continue to reflect its established position and geographically diversified operations. Genting Plantations’ CPO yield of 3.8 to 3.9 MT per mature hectare in the last three years compares favourably against those of its big regional peers with similar tree profiles, backed by the Group’s strong agronomic practices. Its fairly young tree profile, with an average age of 11.5 years as at end-June 2019, will support long-term production growth.
As with all planters, the Group is highly exposed to volatile CPO prices and mounting pressure from environmental issues. The ratings are also moderated by its production costs, which are higher than those of its large regional peers, partly due to its younger tree profile but buffered by its robust production growth. In addition, Genting Plantations is substantially exposed to the more challenging operating environment in Indonesia, where 63% of its planted area and the bulk of its unplanted land are located. The Group also faces forex risk as US dollar-denominated borrowings still constituted a sizeable 56% of its debts as at end-June 2019, and given that its earnings are mostly denominated in ringgit and the Indonesian rupiah. As CPO is traded in USD, however, a weaker ringgit and Indonesian rupiah (or a stronger USD) will result in higher earnings in the local currency, thus moderating this risk.
The Sukuk Programme under Benih Restu is backed by an irrevocable and unconditional corporate guarantee from Genting Plantations. As such, the enhanced issue rating reflects the credit profile of the Group.
Karin Koh, CFA
(603) 3385 2508
(603) 3385 2577
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Published by RAM Rating Services Berhad
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Ratings on Genting Plantations Berhad