RAM Ratings upgrades Golden Agri’s issue rating to AA3(s)

Published on 27 Sep 2021.

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RAM Ratings has upgraded the rating of Golden Assets International Finance Limited’s (Golden Assets) RM5 bil Islamic Medium Term Notes Programme (2012/2027) to AA3(s) from A1(s). Golden Assets is a funding conduit of Indonesia-based plantation company, Golden Agri-Resources Ltd (GAR or the Group). The rating has a stable outlook. 

The upgrade reflects GAR’s stronger than expected performance in FY Dec 2020 and 1H FY Dec 2021 on the back of historically high crude palm oil (CPO) prices. We expect the Group’s financial metrics to improve further through the next two years amid above-average prices and production recovery. 

Supported by low inventory levels and robust demand following the easing of global lockdowns, CPO prices rallied from an average of RM2,765/MT in 2020 to RM4,124/MT in 8M 2021. GAR’s fresh fruit bunch production levels surpassed our projections by 5% in 2020 and 9% in 1H 2021 owing to better weather conditions and the addition of new estates. These factors caused the Group’s operating profit before depreciation, interest and tax to more than double in 1H FY Dec 2021 after rising 42% to USD635.4 mil for full-year 2020. 

We expect Indonesia’s commitment to the B30 biodiesel mandate – blending biofuel with a 30% palm oil mix – to result in structurally higher demand, ensuring strong CPO uptake in the medium term. The country’s biodiesel consumption climbed 33% y-o-y to 8.5 mil kilolitres in 2020 (representing 42% of local CPO consumption) after the use of B30 biodiesel was made mandatory last year. Domestic consumption of biodiesel is targeted to rise further to 9.2 mil kilolitres (+9%) in 2021 while the supply environment is likely to remain tight. Growing emphasis on the environmental sustainability of palm oil production has constrained new plantings in key producing countries (Indonesia and Malaysia) and is expected to continue to do so. These factors point to positive market fundaments in the medium term. 

In the near term, CPO prices will be backed by the rise in consumption as economies recover from the pandemic and CPO’s current steep discount to soybean oil. The soybean oil price has itself doubled in the past year due to tight supply caused by weather-related disruptions and its increased use in the production of renewable diesel, also known as hydrotreated vegetable oil (HVO). Strong incentives have driven HVO production in the US. 

We have conservatively assumed CPO prices will average RM3,800/MT for the whole of 2021 on account of sturdy demand and continued tight vegetable oil supply. Our projections assume prices will ease to RM3,000/MT in 2022 and RM2,800/MT in 2023 as demand and supply rebalance, but remain above the average seen in the past few years (2016-2020 average: RM2,510/MT). Even so, GAR’s funds from operations debt coverage (FFODC) is anticipated to stay comfortably within the threshold of an AA3 rating at a minimum 0.20 times when adjusted for readily marketable inventories (RMI).

We expect GAR’s capex and investments to amount to a moderate sum of below USD200 mil per year, mainly relating to maintenance, replanting and the expansion of its biodiesel capacity. Market conditions in 2021 will yield windfall profits and cashflows this year, which will be partly used to pare down debts. Lower but still favourable CPO prices in the coming years should continue to provide the Group with healthy cashflows and support further deleveraging. In our projections, we had also incorporated an additional USD100 mil-150 mil of investing outflows for long-term investments in the projections, although not expected by management. Despite this, GAR’s RMI-adjusted net gearing will improve considerably to below 0.4 times while RMI-adjusted FFODC will hover around 0.30 times in the next two years (end-December 2020: 0.58 times and 0.24 times).

The issue rating reflects GAR’s credit risks in view of the Group’s irrevocable and unconditional undertaking to the Trustee, for the benefit of the sukuk holders, to fulfil its obligations to Golden Assets to ensure principal and profit payments or any amount falling due under the sukuk programme are met. 


Analytical contacts
Amy Lo 
(603) 3385 2509

Thong Mun Wai 
(603) 3385 2522


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
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