FW: RAM Ratings reaffirms Golden Agri's IMTN rating

 

Published on 05 Dec 2017.

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 of Indonesia-based Golden Agri-Resources Ltd (GAR or the Group).    

The rating has been reaffirmed on the basis that GAR’s credit metrics had stayed intact for FY Dec 2016 and 1H FY Dec 2017 and are anticipated to remain so. The Group’s debt level was stable at US$2.96 billion as at end-June 2017, translating into a moderate gearing ratio of 0.61 times, after adjusting for readily marketable inventories (RMI). GAR’s debts are projected to gradually ease to about US$2.5 billion over the next 1-2 years in view of reduced capex needs. 

Operationally, GAR delivered a strong 1H 2017 performance, boosted by increased production and stronger CPO prices (+10% y-o-y). A recovery in yields amid the easing effects of El Nino led to a 32% y-o-y jump in the Group’s CPO output. Consequently, revenue and operating profit before depreciation, interest and tax (OPBDIT) climbed a respective 18% and 54% y-o-y. Along with a stable debt level, GAR’s annualised funds from operations debt coverage (FFODC) (after adjusting for RMI and refundable taxes) improved to 0.23 times (fiscal 2016: 0.18 times). Under our sensitised price scenario, the Group’s adjusted FFODC (after accounting for RMI and refundable taxes) is estimated to hover lower at 0.15-0.20 times.

The rating takes into account GAR’s dominant position as the largest planter in Indonesia and second largest globally. Its integrated operations also provide some stability against commodity price volatility. GAR’s yields compare well vis-à-vis those of large regional peers on the back of strong plantation management. Further, its relatively low cost structure provides good buffers against cyclical challenges. Although its older tree profile will affect long-term production, the Group is actively replanting its estates with better-yielding seeds.

The Group’s still-high debt level continues to moderate its rating. Apart from debts taken on to expand its refining capacity, GAR had also geared up to fund working capital for its downstream operations and increased exposure to destination market sales. With progressive debt reduction in the coming years, the Group’s adjusted debt-to-OPBDIT ratio is estimated to come in at between 4 and 5 times (fiscal 2016: 5.53 times), while RMI-adjusted gearing will linger at a moderate 0.6-0.7 times (fiscal 2016: 0.72 times).

As with all planters, the Group is highly exposed to the volatility of CPO prices and rising pressure stemming from environmental issues. Additionally, GAR 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. The rating also factors in the Group’s history of debt rescheduling.

Through a Deed of Covenant, GAR irrevocably and unconditionally provides an undertaking to the Trustee, for the benefit of the IMTN holders, to fulfil its obligations to Golden Assets to meet principal and profit payments or any amount falling due under the facility. As such, the rating of the IMTN Programme 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