Fitch revises Sime Darby Plantation to ‘Stable’


FITCH Ratings Inc 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”.

The rating on its sukuk programme and outstanding issuance under SDP’s senior unsecured rating has also been affirmed at “BBB”, the rating agency said.

“The stable outlook reflects our expectation that SDP will be able to keep its leverage below the negative rating sensitivity of three times on a sustained basis.

“SDP’s leverage, measured as FFO (funds from operations) net leverage, fell to 2.8 times in 2020, well ahead of our expectations for deleveraging,” it said in a statement yesterday.

Fitch Ratings added that the quicker pace in SDP’s leverage ratio reflects high crude palm oil (CPO) prices, supported by SDP’s asset disposals.

“We estimate leverage will remain under the negative sensitivity over the next three years. Leverage may breach the threshold temporarily in 2022 due to our expectation of lower prices.

“We believe SDP’s planned asset disposals and intention to improve capital structure should support a long-term leverage profile appropriate for its rating, which under- pins the outlook revision,” the rating agency said.

Fitch Ratings raised its assumption for the average Malaysian benchmark CPO price for 2021 to US$700 (RM2,899.05) per tonne from US$560 per tonne earlier, while cutting its assumption for 2022 to US$550 per tonne from US$600 per tonne.

“Our long-term assumption remains unchanged at US$600 per tonne. Palm oil prices in the first half of 2021 will be supported by foreign labour shortages in Malaysia and high prices for a substitute, soybean oil.

“However, we expect the 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.

On SDP’s divestment progress, which is among the Fitch Ratings’ key drivers for the planter, the rating agency said the divestment pace is expected to remain slow in the short to medium term as the pandemic’s economic implications delay discretionary investments.

“SDP received around RM500 million in divestment proceeds in 2020, below its RM1 billion to RM1.5 billion targets.

“We assumed previously the annual divestments of RM500 million in 2021 to 2024, based on the 2020 record and 2021 divestment pipeline. The pace could accelerate if the economic recovery picks up, which could improve SDP’s free cash generation,” it said.

On the withhold release order issued by the US Customs Border Protection on SDP, Fitch Ratings said the import restriction poses a limited impact to the planter due to SDP’s small exposure to the US market.