Published on 11 Dec 2020.
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. We anticipate some improvement in the Group’s financials in the next two years, backed by more robust crude palm oil (CPO) prices as well as the dissipating effects of the dry weather that had affected output in 2019 and 2020.
Following its softer upstream productivity in 2019, Genting Plantations’ pace of production decelerated further in 1H FY Dec 2020 (-11.2% y-o-y) amid an extended dry spell. This year, the industry has also been tested further by pandemic-related demand disruptions in major consuming countries. Nonetheless, demand is recovering amid restocking efforts from China and India, as well as Indonesia’s latest biodiesel mandate. More robust CPO selling prices in 1H FY Dec 2020 had mitigated poorer FFB output, leading to a 16.3% y-o-y rise in its OPBDIT during the period.
The sizeable proceeds from the conversion of outstanding warrants in 2019 (total: RM710 mil) has strengthened Genting Plantations’ financial position. As at end-June 2020, the Group’s net gearing ratio had eased to 0.22 times (end-December 2018: 0.34 times), as some of the proceeds from this exercise had been retained as cash. In line with weaker-than-expected cashflows, the Group’s funds from operations (FFO) net debt cover came in at slightly below 0.4 times in FY Dec 2019 and 1H FY Dec 2020 (FY Dec 2018: 0.23 times) – against earlier projection of 0.5-0.6 times. All said, this is still supportive of its ratings. Given higher average CPO prices and rejuvenated output growth, the Group’s FFO net debt cover is anticipated to exceed 0.40 times in fiscal 2021 and 2022.
Meanwhile, Genting Plantations’ ratings continue to reflect its established position and geographically diversified operations. Genting Plantations’ CPO yield of 3.8-4.0 MT per mature hectare in the last three years compares favourably against those of its big regional peers with similar tree profiles. Its fairly young tree profile, with an average age of 12.1 years as at end-June 2020, will support long-term production growth.
As with all planters, Genting Plantations is highly exposed to volatile CPO prices and mounting pressure from environmental and labour rights issues. In addition, Genting Plantations is exposed to the more challenging operating environment in Indonesia, where some 63% of its planted area is located. The Group also faces forex risk, as about half of its borrowings are denominated in USD while 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 bump up earnings in the local currency, thereby moderating this risk.
The rating of the Sukuk under Benih Restu Berhad (Genting Plantations’ wholly owned funding conduit) is backed by an irrevocable and unconditional corporate guarantee from the Group. As such, the enhanced issue rating reflects the Group’s credit profile.
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Published by RAM Rating Services Berhad
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Ratings on Genting Plantations Berhad