RAM Ratings has reaffirmed the AA2/Stable/P1 corporate credit ratings of Genting Plantations Berhad (Genting Plantations or the Group) and 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. As the

Published on 25 October 2016

RAM Ratings has reaffirmed the AA2/Stable/P1 corporate credit ratings of Genting Plantations Berhad (Genting Plantations or the Group) and 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. As the Sukuk Programme is backed by an irrevocable and unconditional corporate guarantee from Genting Plantations, the enhanced issue rating reflects the credit profile of the Group. The reaffirmation of the ratings is premised on Genting Plantations’ robust cash reserves and strong balance sheet which sufficiently mitigate the weaker credit metrics registered by the Group last year and expected over the next 1-2 years.

Operationally, the Group’s productivity metrics of 4.2-4.7 metric tonnes of CPO per mature hectare remained comparable to that of large, regional peers with similar tree profiles – a reflection of its good plantation management. Genting Plantations’ fresh fruit bunch (FFB) production improved 4% last year on account of a larger output from its young Indonesian estates, but contracted 15% in the first half of this year in line with the industry trend. Despite the easing effects of an unfavourable climate, the Group’s full-year FFB output is expected to be lower y-o-y.

Softer CPO prices and the absence of land sales in fiscal 2015 had caused the Group’s operating profit before depreciation, interest and tax (OPBDIT) to fall 37% y-o-y. Its OPBDIT was 23% weaker y-o-y in 1H fiscal 2016 due to softer plantation and property earnings. Along with heftier debts, Genting Plantations’ funds from operations debt cover (FFODC) deteriorated to 0.1 times in fiscal 2015 and 1H fiscal 2016, although FFO net debt coverage of about 0.7 times remained supportive of its ratings. Going forward, Genting Plantations’ debt level may stay elevated at around RM2 billion in the next 1-2 years to finance its Indonesian operations (end-June 2016: RM1.96 billion). Nevertheless, net gearing will stay strong at below 0.2 times (end-June 2016: 0.07 times) while its FFO net debt cover is estimated at a still-robust 0.6-0.7 times.

As with all planters, the Group is highly exposed to the volatility of CPO prices and rising pressure stemming from environmental issues. The ratings are also moderated by its cost structure which remained elevated vis-à-vis large regional peers, partly owing to its younger tree profile. In addition, Genting Plantations is considerably exposed to the more challenging operating environment in Indonesia, where 57% of its planted area and the bulk of its unplanted land are located. Apart from evolving regulations and lengthy negotiations with land owners, the palm-oil levy imposed on exporters of palm products in Indonesia in mid-July 2015 has diluted the selling prices for upstream planters in the republic. Further, the Indonesian President’s proposal to implement a moratorium for oil-palm planting causes uncertainty for industry players in the republic.

The Group faces forex risk arising from a USD-denominated term loan that made up a material 45% of its total debts as at end-June 2016. As the loan is not hedged due to its long-dated nature, the severe depreciation of the ringgit and the Indonesian rupiah in recent years will further increase the Group’s borrowing costs. On balance, with CPO prices being tied to the USD, the positive effects from the weaker ringgit on the Group’s top line will partially offset this risk.

Analytical contact                                        Media contact
Karin Koh, CFA                                              Padthma Subbiah
(603) 7628 1174                                            (603) 7628 1162
karin@ram.com.my                                        padthma@ram.com.my