KUALA LUMPUR (April 1): Fitch Ratings has revised the outlook on Sime Darby Plantation Bhd (SDP) to stable, from negative, and affirmed the Long-Term Foreign-Currency Issuer Default Rating (IDR) at “BBB”.
Meanwhile, SDP’s senior unsecured rating, the rating of its sukuk programme and outstanding issuance under the programme have been affirmed at “BBB”.
“The stable outlook reflects our expectations that SDP will be able to keep its leverage below negative rating sensitivity of three times on a sustained basis,” it said.
According to the rating agency, SDP’s leverage, measured as funds from operations (FFO) net leverage, fell to 2.8 times in 2020, well ahead of its expectations for deleveraging.
Fitch also noted that the quicker pace reflected high crude palm oil (CPO) prices, supported by asset disposals.
“We estimate leverage will remain under negative sensitivity over the next three years. Leverage may breach the threshold temporarily in 2022 due to our expectations of lower prices,
“However, we believe SDP’s planned asset disposals and intention to improve its capital structure should support a long-term leverage profile appropriate for its rating, which underpins the outlook revision,” it said.
Fitch also raised its assumption of the average CPO price to US$700 (about RM2,902.55) per ton, from US$560 per ton earlier, while cutting its assumption for 2022 to US$550 per ton from US$600 per ton.
“Our long-term assumption remains unchanged at US$600 per ton. Palm oil prices in the first half will be supported by foreign labour shortages in Malaysia and high prices for a substitute, [namely] soybean oil,” it said.
However, it expects industry output to increase over the year, with the impact on prices likely to be more pronounced in 2022.
“SDP’s rating continues to reflect the company’s position as the world’s largest palm oil plantation by planted area and the largest certified palm oil producer, accounting for about 20% of global supply,” it said.
