RAM Ratings has reaffirmed the ratings of Genting Plantations Berhad (Genting Plantations or the Group) and Benih Restu Berhad’s (Benih Restu or the SPV) proposed RM1.5 billion 15-year Sukuk Programme (2013/2028) at a respective AA2/Stable/P1 and an enhanced AA2(s)/Stable.

RAM Ratings reaffirms Genting Plantations’ and Benih Restu’s ratings

Published on 23 October 2014

RAM Ratings has reaffirmed the ratings of Genting Plantations Berhad (Genting Plantations or the Group) and Benih Restu Berhad’s (Benih Restu or the SPV) proposed RM1.5 billion 15-year Sukuk Programme (2013/2028) at a respective AA2/Stable/P1 and an enhanced AA2(s)/Stable. 

A wholly-owned subsidiary of Genting Plantations, Benih Restu will facilitate the issuance of the proposed Sukuk, which is backed by an irrevocable and unconditional guarantee from the former. Therefore, the enhanced issue rating reflects the credit profile of the Group.

Genting Plantations’ ratings continue to be supported by its superior balance sheet, robust debt coverages as well as strong liquidity and financial flexibility. Operationally, the Group’s fresh fruit bunch (FFB) and crude palm oil (CPO) yields remain healthy, above the Malaysian industry average. Most encouragingly, its Indonesian operations have turned profitable in FY Dec 2013. We expect Genting Plantations’ to enjoy strong growth in production and profit contribution from Indonesia over the medium term, underpinned by more than 40,000 ha entering the mature phase, which would help support its strong financial profile. As such, we do not expect its gearing ratio to breach 0.3 times while its funds from operations debt coverage ratio is envisaged to hover at 0.3 times over the next 3 years.

Nevertheless, with about half of its planted area in Indonesia, Genting Plantations operates in a more challenging environment than planters operating solely in Malaysia. Recently, the Indonesian parliament has passed a new plantation bill. The new law handed over the determination of the cap level to the central government. The central government is allowed to regulate the extent of direct foreign investment in Indonesia’s growing plantation and stipulate foreign investment matters, such as threshold, type of plantation, and business scale. The existing foreign plantation companies will be required to comply with the new law after their period of licensing of rights to cultivate land has ended.

As with other plantation players, Genting Plantations is exposed to the volatility of CPO prices and the challenge of rising costs. For the latter, labour costs remained elevated in fiscal 2013 affecting the plantation industry. Although Genting Plantations’ strong CPO production has helped ease its costs pressure, the weaker CPO prices had kept its segmental margin below 40% (compared to around 50% previously). Moving forward, barring any further softening of CPO prices, improved CPO production, chiefly from Indonesia, will result in a more favourable production cost structure.

Media contact
Robert Ching
(603) 7628 1031
robertching@ram.com.my