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21 Dec | Friday
RAM Ratings reaffirms Golden Agri’s sukuk rating
RAM Ratings has reaffirmed the A1(s)/stable rating of the RM5.0 billion Islamic MTN Programme (2012/2027) issued by Golden Assets International Finance Limited (Golden Assets), a funding conduit for Indonesia-based plantation company Golden Agri-Resources Ltd (GAR or the Group).
 
The rating has been reaffirmed premised on our expectation that GAR’s adjusted funds from operations debt coverage (FFODC, after adjusting for readily marketable inventory (RMI) and refundable taxes) will hover around 0.15 times in the next one to two years, amid production growth and a slightly lower debt level. The debt coverage is, however, at the low end of our previous projection of 0.15-0.20 times.  The Group’s USD3.12 billion debt load as at end-September 2018 was heftier than anticipated, due to cash outlays for additional long-term investments (primarily technology-related investments); debt repayment was also hindered, to some extent, by its weaker cashflow amid the bearish CPO prices and lower downstream profits. GAR’s debts are projected to gradually ease to about USD2.8 billion over the next one to two years – a slower pace partly due to its weaker cashflow amid the current industry down cycle. 
 
GAR registered stronger CPO production in FY Dec 2017 (+8% y-o-y) and 9M FY Dec 2018 (+7% y-o-y), underpinned by a recovery in yields from the El Nino weather phenomenon. That said, the increase in output is slower than expected as production growth tapered off in 2H fiscal 2017. GAR’s operating profit before depreciation, interest and tax (OPBDIT) tumbled 29% y-o-y in 9M FY Dec 2018, as a weaker average CPO price and thinner downstream profits negated its more robust production. The Group also incurred pre-tax losses, compounded by USD45 million of translation losses. The weaker profit performance and heftier debts thinned GAR’s annualised FFODC (after adjusting for RMI and refundable taxes) to 0.12 times in 9M FY Dec 2018 (fiscal 2017: 0.20 times).
 
The rating continues to reflect GAR’s dominant position as the biggest planter in Indonesia and the world’s second largest. Its integrated operations provide some stability against volatile commodity prices. GAR’s CPO yield improved to 4.6 metric tonnes per mature hectare last year; it remains favourable vis-à-vis those of its large regional peers, backed by its strong plantation management. Furthermore, the Group’s costs are relatively low due to its healthy crop productivity, although its upstream margins lag behind those of its peers due to sizeable purchases of FFB from plasma farmers and external parties. Although its older tree profile will affect long-term production, the Group is actively replanting its estates with newer generation, better-yielding seeds.
 
Apart from GAR’s hefty debt load, the rating is also moderated by its inherent exposure to the volatility of CPO prices and mounting pressure from environmental issues. Additionally, the Group operates within a more challenging landscape in Indonesia, having to contend with a still-evolving regulatory framework, protracted negotiations with land owners and infrastructure bottlenecks. Moreover, the rating incorporates the Group’s history of debt rescheduling.
 
Through a Deed of Covenant, GAR has irrevocably and unconditionally provided an undertaking to the Trustee, for the benefit of the IMTN holders, to fulfil its obligations to Golden Assets vis-à-vis meeting principal and profit payments or any amount falling due under the Islamic IMTN. As such, the sukuk rating reflects GAR’s credit risk.  
 
 
Analytical contact
Karin Koh, CFA
(603) 7628 1174
karin@ram.com.my
 
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
 
Date of release: 20 December 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
Ó Copyright 2018 by RAM Rating Services Berhad
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