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Press Release
02 Jan | Tuesday
RAM Ratings revises outlook on Indonesia-based Bumitama to positive; reaffirms AA3 rating

RAM Ratings has revised to positive from stable the outlook on the AA3 rating of Bumitama Agri Ltd’s (the Group) RM2.0 billion Islamic MTN Sukuk Musharakah (2014/2029) while reaffirming the rating. The positive outlook reflects Bumitama’s improved credit metrics, coupled with our expectation that these metrics will be sustained by continued improvement in the Group’s operating performance while the Group’s debt load will remain largely unchanged.

Prospects for growth in Bumitama’s production are underpinned by its young tree profile and expanding mature planted area. Although impacted by the lagged effects of El Nino in 2016, its fresh fruit bunch (FFB) output rebounded a strong 43.6% y-o-y in 9M 2017. Notwithstanding its young trees, Bumitama maintains good plantation management, as evinced by the Group’s FFB and CPO yields that are comparable to that of more established peers.

Additionally, Bumitama has noticeably pared down its debts and improved its leverage profile. The Group’s gearing and debt-to-operating profit before depreciation, interest and tax (OPBDIT) ratios had eased to 0.59 times as at end-September 2017 (end-December 2016: 0.65 times) and 2.05 times for the first 9 months of FY Dec 2017 (end-December 2016: 2.47 times), respectively, both of which were better than expected. Bumitama’s funds from operations debt coverage (FFODC) also exceeded our expectation at 0.41 times (annualised) for the first 9 months of FY Dec 2017 (FY Dec 2016: 0.33 times). Barring larger-than-anticipated debt-funded expansions, we expect the Group’s debt-to-OPBDIT ratio to stay below 3.00 times and its FFODC to be above 0.30 times for the next few years. If proven sustainable, these levels may warrant an upgrade.

These strengths are, however, moderated by the Group’s high production cost as a result of substantial FFB purchases. These were necessitated by Bumitama’s relatively young estates, which have not reached a production level sufficient to optimise the utilisation of its mills. As with all oil palm planters, the Group is exposed to the volatility of CPO prices and rising pressure from environmental issues. Bumitama also faces an inherently more challenging operational landscape in Indonesia, given the still-evolving regulatory environment, protracted negotiations with land owners and underdeveloped infrastructure.

Bumitama is an oil-palm plantation group based in Indonesia, ranking among the top 10 listed plantation companies in Asia by total planted area. The Group currently owns more than 230,000 ha of land, mostly in Kalimantan, about 80% of which comprises planted estates. As at end-September 2017, its trees had a weighted-average age of about 8.3 years – oil palms are typically considered mature at 4 years and reach prime production at around 7-18 years.

Analytical contact
Wang Wai Wah
(603) 7628 1110
waiwah@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

Date of release: 2 January 2018

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
© Copyright 2018 by RAM Rating Services Berhad’s

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