KUALA LUMPUR: Sime Darby Bhd’s acquisition of New Britain Palm Oil Ltd (NBPOL) is “credit positive” for the plantation giant as it would increase its operational scale and geographical mix of palm oil sources, and enhance its European sales channel, said Moody’s Investors Service.
It would also be immediately accretive to its earnings before interest, taxes, depreciation and amortisation (Ebitda), Moody’s said in a statement yesterday.
“The addition of NBPOL’s plantations will increase Sime Darby’s 525,290ha of oil palm plantations by 15% to 605,174ha and widen its competitive advantage,” it said.
Sime is the world’s largest upstream crude palm oil (CPO) producer. The next largest producers are Golden Agri Resources Ltd (with 469,576ha of oil palm plantations) and Felda Global Ventures Holdings Bhd (374,111ha).
Moody’s said the buy would improve the geographical diversity of Sime’s palm oil sources and mitigate the risk of unfavourable local weather conditions.
“The addition of NBPOL’s plantations will 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.”
In terms of earnings, Moody’s noted that NBPOL has an ebitda of US$97 million (RM317.2 million). NBPOL’s fresh fruit bunch yield in 2013 was 21.7 tonnes per hectare, which topped Sime Darby’s 19.9 tonnes and that of other major producers like Wilmar International Ltd and Indofood Agri Resources Ltd.
Moody’s said NBPOL has a 300,000 tonne per annum (tpa) refinery in Liverpool and is fully certified by the Roundtable of Sustainable Palm Oil, which bodes well for Sime Darby, with its existing 450,000 tpa refinery in the Netherlands.
It also noted Sime Darby’s indicated funding mix of 80% debt and 20% cash would push its adjusted gross debt-to-Ebitda ratio to between 2.6 times and 2.9 times after the acquisition.
This would exceed Moody’s A3 rating guidance debt-to-Ebitda ratio of 2.4 times to 2.6 times but the credit rating agency expects Sime Darby to be able to reduce its leverage to 2.5 times or lower by the end of financial year 2015.
This article first appeared in The Edge Financial Daily, on October 17, 2014.