Fitch Rating Outlook: Sime Darby Negative to Stable


Dari New Straits Times:

Fitch revises Sime Darby outlook from negative to stable

KUALA LUMPUR: Fitch Ratings has revised the outlook on Malaysia-based conglomerate Sime Darby Bhd to stable from negative.

This follows Sime Darby’s announcement of a successful share placement, proceeds from which will help the company lower its leverage.

The ratings agency said the outlook for the conglomerate’s principal oil palm plantation business has improved significantly following a recovery in crude palm oil (CPO) prices this year.

Higher cash flows from the plantation business will also support deleveraging at Sime Darby, it added.

Last week, the company announced that it raised RM2.4 billion (US$569 million) in cash by placing out 316.35 million shares, which account for 4.7% of its expanded capital base.

“We estimate the share placement will help the company lower its FFO-adjusted (funds from operations) net leverage to 3.0 times in the financial year ending 30 June 2017, compared with 4.0 times in the 2016 financial year as per unaudited summary financial statements.”

Sime Darby proposes to use around 50 per cent of the placement proceeds to repay debt, and the rest of the proceeds to fund capex and working capital.

Permodalan Nasional Berhad (PNB) will continue to be Sime Darby’s largest shareholder with a stake of approximately 53 per cent after the share placement.

Fitch does not expect the share placement to change the company’s cash dividend payout of around 40 per cent of net income in the medium term.

The ratings agency expects CPO prices to remain at the current levels or even increase, which would drive an improvement in Sime Darby’s operating EBITDA margin to around 11.5 per cent in the next financial year from 10.8 per cent in the current financial year.

It also expects the plantation business to continue to be the dominant cash flow contributor and key driver of its rating over the medium term, and it has amended the rating sensitivities to capture weaknesses in the profitability of its plantation business.

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