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Press Release
02 Jan | Wednesday
RAM Ratings reaffirms Genting Plantations’ ratings
RAM Ratings has reaffirmed the AA2/Stable/P1 corporate credit ratings of Genting Plantations Berhad (the Group), along with the AA2(s)/Stable rating of the RM1.5 billion Sukuk Murabahah Programme (2015/2030) issued by the Group’s wholly owned funding conduit, Benih Restu Berhad. The reaffirmation is premised on our opinion that the Group’s credit metrics will remain supportive of its ratings, with its hefty debt load sufficiently mitigated by robust cash reserves. 
 
Operationally, the Group’s production of fresh fruit bunches (FFB) rose a respective 17% and 12% in FY Dec 2017 and 1H FY Dec 2018, underscored by yield recovery amid the dissipating El Nino effects and the expansion of newly matured areas for its young Indonesian estates. The stronger productivity was, however, negated by weaker CPO prices (-18% y-o-y), leading to a 10% y-o-y decline in its operating profit before depreciation, interest and tax in 1H FY Dec 2018. Coupled with a hefty debt load of RM2.86 billion as at end-June 2018, the Group’s financial metrics came in weaker, but are expected to recover amid stronger production and slightly better CPO prices, as well as its enlarged cash buffer from the proceeds of its warrant conversion. 
 
Genting Plantations’ cash coffers stand to be boosted by the proceeds from the exercise of its warrants that are mostly held by its parent, Genting Berhad (Genting, rated AAA/P1), by mid-2019 as they are in-the-money and will expire next June. The warrant conversions are likely so that Genting can avoid the dilution of its shareholding in the Group and given Genting Plantations’ future earnings growth. Assuming that just half of the warrants will be exercised, the Group’s net gearing ratio will dip below 0.20 times next year (end-June 2018: 0.28 times) while its funds from operations (FFO) net debt cover will come up to at least 0.60 times (1H FY Dec 2018: 0.34 times, annualised).
 
The Group’s ratings continue to reflect its established position and geographically diversified operations. Genting Plantations’ CPO yield of 3.8 to 4.3 MT per mature hectare in the last three years still stacks up favourably against those of its big regional peers with similar tree profiles, backed by its strong plantation management. Its fairly young tree profile, with an average age of 10.7 years as at end-June 2018, 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 the Group’s costs, which are higher than those of its large regional peers, partly due to its younger tree profile. In addition, Genting Plantations is considerably exposed to the more challenging operating environment in Indonesia, where 63% of its planted area and the bulk of its unplanted land are located. 
 
Genting Plantations also faces forex risk as US dollar-denominated borrowings still constituted a sizeable 58% of the Group’s debts as at end-June 2018, and given that its earnings are mostly denominated in ringgit. Nevertheless, as CPO prices are tied to the US dollar, the positive effects of a weaker ringgit on the Group’s top line will partially offset 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.
 
 
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: 26 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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