Moody’s affirms BAA2 ratings on Sime Darby Plantation, Sime Darby Global

Moody’s affirms BAA2 ratings on Sime Darby Plantation, Sime Darby Global

A Sime Darby plantation signboard is seen in Sekinchan, Selangor October 31, 2020. — Picture by Miera Zulyana

Thursday, 01 Sep 2022 5:44 PM MYT

KUALA LUMPUR, Sept 1 — Moody’s Investors Service has affirmed the Baa2 issuer rating on Sime Darby Plantation Bhd (SDP) as well as the (P)Baa2 rating on the US$1.5 billion (RM6.7 billion) backed senior unsecured medium-term note programme of its wholly owned subsidiary, Sime Darby Global Bhd, and the Baa2 backed senior unsecured rating on the sukuk issued by Sime Darby Global.

At the same time, Moody’s maintains its stable outlook on the ratings, it said in a statement today.

Vice-president and senior analyst Maisam Hasnain said the rating affirmation reflects an expectation that SDP will maintain solid credit metrics over the next 12-18 months despite a contraction in palm oil prices, and will adhere to conservative financial policies including maintaining low leverage levels.

“The outlook is stable, reflecting our expectation that SDP will maintain profitable operations, achieve its leverage reduction target, and continue to enhance its sustainability policies and practices over the next 12 to 18 months,” she said.

According to Moody’s, SDP’s credit quality is supported by the company’s position as the largest listed palm oil plantation company by planted area and the largest global producer of certified sustainable palm oil, with integrated operations spanning the palm oil value chain.

“Moody’s expects SDP’s earnings to contract over the next 12-18 months as crude palm oil (CPO) prices moderate from record-high levels.

“However, while SDP’s leverage — as measured by adjusted debt/earnings before interest, taxes, depreciation and amortisation (EBITDA) — increased 1.5 times as at June 2022, it will remain solid at around 2.2 to 2.4 times,” it said.

Moody’s added that such leverage levels are supportive of its Baa2 ratings. Its leverage could be lower if the company raises funds from asset sales, which Moody’s expects will be prioritised for debt reduction.

The agency said SDP’s Baa2 rating is premised on the company maintaining a prudent approach toward investments and shareholder distributions.

The company has also made progress toward its publicly stated policy of achieving gross debt/equity of 30 per cent by the end of 2023, of which this ratio has declined by 36 per cent as at June 2022 versus 49 per cent in December 2019.

“At the same time, SDP’s ratings incorporate its susceptibility to a fluctuation in credit metrics due to volatile palm oil prices and increasing stakeholder scrutiny around environmental, social, and corporate governance risks associated with the palm oil sector.

“Moody’s expects SDP to continue to strengthen its sustainability practices and engage with the United States Customs and Border Protection to resolve its forced labour findings and take corrective actions to protect and enhance workers’ rights,” it said. — Bernama