RAM Ratings reaffirms Genting Plantations’ AA2/P1 ratings, revises outlook to stable

Published on 18 January 2013

RAM Ratings has reaffirmed Genting Plantations Berhad’s (“Genting Plantations” or “the Group”) respective long- and short-term corporate credit ratings at AA2 and P1. At the same time, the positive outlook on the long-term rating has been revised to stable. 

Genting Plantations is principally involved in the cultivation of oil palm. It has 22 estates across Peninsular Malaysia and Sabah, and 6 joint ventures in Indonesia. The Group currently spearheads the plantation division of Genting Berhad (rated AAA/Stable/P1 by RAM Ratings), its major shareholder with a 54.6%-stake. It is also involved in property development and biotechnology, albeit on a smaller scale.

Genting Plantations’ long-term rating had been placed on a positive outlook since 27 January 2011 due to its commendable operational and financial track record. However, its results have declined amid more challenging operating conditions this year, in line with industry performance. In particular, the Group’s production costs have escalated considerably in the first 9 months of FYE 31 December 2011 due to inflationary cost pressures, lower yield and timing difference on certain cost elements. Moreover, the Group’s Indonesian plantations has yet to break even as at end-September 2012 as a result of its relatively young age profile and challenges of operating in Indonesia. Despite these challenges, Genting Plantations’ progress in terms of new plantings has exceeded expectations. In the near term, the increasingly challenging operating landscape, as evidenced by sharp fall in crude palm oil (“CPO”) prices recently, precluded the possibility of an upgrade in Genting Plantations’ long-term rating. As such, the rating outlook has been revised to stable.

Genting Plantations’ ratings continue to be supported by its strong balance sheet, as demonstrated by its net cash position over the past decade. Further, Genting Plantations’ fresh fruit bunch and CPO yields remained healthy, above the Malaysian industry average. The Group also derives substantial financial flexibility from its vast unencumbered land bank.

Moving forward, the Group’s financials are envisaged to be dictated by the increasingly challenging operating environment with movement of palm product prices continuing to impact its performance. Its gearing ratio is expected to peak at about 0.2 times as it continues to expand in Indonesia. After factoring in more conservative CPO price assumption and higher production costs, Genting Plantations’ operating cashflow debt coverage ratio could moderate from about 0.4 times to around 0.3 times within the next 1 to 2 years.

Media contact

Robert Ching

(603) 7628 1031

robertching@ram.com.my