Thursday 28 Mar 2024
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KUALA LUMPUR ( Oct 16): Moody’s Investors Service says Sime Darby Bhd's acquisition of New Britain Palm Oil Limited (NBPOL) is “credit positive” for the plantation giant.

According to Moody's the acquisition will increase Sime’s operational scale and geographical mix of palm oil sources, besides contributing to its earnings before interest tax, depreciation and amortisation (EBITDA).

“The addition of NBPOL’s plantations would increase Sime Darby’s 525,290 hectares of oil palm plantations by 15% to 605,174 hectares, and widen its competitive advantage,” said Moody’s in a statement today.

Sime is the world’s largest upstream crude palm oil (CPO) producer. The next largest producers are   Golden Agri Resources Ltd (with 469,576 hectares of oil palm plantations) and Felda Global Ventures (374,111 hectares).

Moody’s said the acquisition would also improve the geographical diversity of Sime’s palm oil sources and mitigate the risk of unfavourable localised weather conditions.

“The addition of NBPOL’s plantations would reduce Sime Darby’s reliance on Malaysia and result in a portfolio of plantations that is well balanced between domestic and overseas sources: 51% in Malaysia, 34% in Indonesia, 13% in Papua New Guinea and 2% in Liberia on a pro forma basis,” it said.

In terms of earnings, Moody’s notes NBPOL has an EBITDA of US$97 million (RM317 million). NBPOL’s fresh fruit bunch yield for 2013 was reported to be 21.7 tonnes per hectare which topped Sime’s 19.9 tonnes and that of other major producers like Wilmar International Ltd and Indofood Agri Resources Ltd.

Moody’s added the acquisition would also enhance Sime’s European sales channel as NBPOL was reported to have a 300,000 ton per annum (tpa) refinery in Liverpool and was fully certified by the Roundtable of Sustainable Palm Oil (RSPO). This bodes well with Sime’s existing 450,000 tpa refinery in the Netherlands.

Moody’s also noted Sime’s indicated funding mix of 80% debt and 20% cash would push its adjusted gross debt/EBITDA ratio to between 2.6 times and 2.9 times after the acquisition.

This would exceed Moody’s A3 rating guidance debt/EBITDA ratio of 2.4 times to 2.6 times but the credit rating agency expected Sime to be able to reduce its leverage to 2.5 times or lower by end FY2015.

“Sime Darby has alluded to disposals of non-core assets and an initial public offering of its automotive division that would result in leverage returning fairly swiftly to within our A3 guidance,” it said.

 

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