MARKET DEVELOPMENT
Moody’s: Sime Darby Extends Palm Oil Lead with NBPOL Purchase
Moody’s: Sime Darby Extends Palm Oil Lead with NBPOL Purchase
14/10/2014 (The Star) - Sime Darby Bhd's (A3 stable) acquisition of New Britain Palm Oil Ltd (NBPOL, unrated), if successful, will increase the scale and geographic diversity of Sime Darby's sizable plantation segment, says Moody's Investors Service.
The ratings agency said on Monday the purchase would widen its competitive advantage in the upstream plantations segment, as against the rest of the industry.
At the same time, leverage metrics are expected to be stretched for the rating, though should recover quickly.
"Sime Darby is already the world's largest upstream crude palm oil producer. The acquisition would increase its planted area by 15%. By comparison, the next largest players are Felda Global Ventures and Golden Agri-Resources," said a Moody's vice president and senior credit officer Alan Greene.
The report, entitled “Sime Darby extends lead in crude palm oil with NBPOL purchase,” and is co-authored by Greene and Dylan Yeo, an Associate Analyst.
Moody's report points out that Sime Darby's 525,290 ha of oil palm at June 2014, combined with NBPOL's 79,884 ha of oil palm in the same period, would amount to 1.62 times that of Felda Global Ventures (unrated) and 1.29 times that of Golden Agri-Resources Ltd (Ba2 stable).
"The acquisition would also improve the geographical diversity of Sime Darby's palm oil sources, thereby mitigating the risk of unfavorable localised weather," Greene added.
Sime Darby's existing plantations span Malaysia, Indonesia and Liberia. The addition of NBPOL's plantations in Papua New Guinea (PNG, B1 stable) wll result in a planted area profile that is well-balanced between alaysia and overseas. In particular, about 51% in Malaysia, 34% in Indonesia, 13% in PNG and 2% in Liberia on a pro-forma basis.
Moody's report also said that the acquisition would enhance Sime Darby's European sales channel, given that NBPOL's 300,000 ton per annum (tpa) refinery in Liverpool is fully certified by the Roundtable of Sustainable Palm Oil, and complements Sime Darby's existing 450,000 tpa refinery in the Netherlands.
Moody's report further points out that while operations in PNG are exposed to regulatory and security risks, NBPOL's operating track record in PNG is long, and its plantations exhibit yields that are above average relative to industry peers. Its operations are also immediately EBITDA accretive, with NBPOL generating $97 million of reported EBITDA at a 17.3% EBITDA margin in 2013.
According to Moody's, NBPOL recorded a fresh fruit bunch yield of 21.7MT/ha for 2013, which is higher than that for Sime Darby (19.9MT/ha) and other large players, such as Golden Agri-Resources, Wilmar International Ltd (unrated), and Indofood Agri Resources Ltd (unrated).
On 9 October 2014, Sime Darby announced an offer for all of NBPOL's shares, valuing the equity at RM5.62bil. Including assumed debt of RM850mil in NBPOL's balance sheet, the cost would total RM6.47bil.
The indicated funding mix would be 80% debt and 20% from cash holdings, resulting in Sime Darby's gross leverage reaching 2.6 times to 2.9 times after the transaction. Such a range would be too high for its current A3 rating.
Nevertheless, Sime Darby has alluded to disposals of non-core assets and an IPO of its Motors division. These sources of funding, together with its continued tight control of capex would see leverage return to below Moody's downgrade parameters of 2.4 times to 2.6 times.
Moody's report further notes that while Sime Darby aims to fully own NBPOL, and has stated that it wants a minimum 51% stake in the company, Moody's believes that it is unlikely that full ownership will be achieved, as government-related entities currently hold around 22% of NBPOL and may wish to increase their ownership interest.
Moody's concludes that NBPOL is therefore likely to remain listed, but not in London, allowing the company to raise funds for expansion or make selective share placements to dilute Sime Darby's stake if required.
The ratings agency said on Monday the purchase would widen its competitive advantage in the upstream plantations segment, as against the rest of the industry.
At the same time, leverage metrics are expected to be stretched for the rating, though should recover quickly.
"Sime Darby is already the world's largest upstream crude palm oil producer. The acquisition would increase its planted area by 15%. By comparison, the next largest players are Felda Global Ventures and Golden Agri-Resources," said a Moody's vice president and senior credit officer Alan Greene.
The report, entitled “Sime Darby extends lead in crude palm oil with NBPOL purchase,” and is co-authored by Greene and Dylan Yeo, an Associate Analyst.
Moody's report points out that Sime Darby's 525,290 ha of oil palm at June 2014, combined with NBPOL's 79,884 ha of oil palm in the same period, would amount to 1.62 times that of Felda Global Ventures (unrated) and 1.29 times that of Golden Agri-Resources Ltd (Ba2 stable).
"The acquisition would also improve the geographical diversity of Sime Darby's palm oil sources, thereby mitigating the risk of unfavorable localised weather," Greene added.
Sime Darby's existing plantations span Malaysia, Indonesia and Liberia. The addition of NBPOL's plantations in Papua New Guinea (PNG, B1 stable) wll result in a planted area profile that is well-balanced between alaysia and overseas. In particular, about 51% in Malaysia, 34% in Indonesia, 13% in PNG and 2% in Liberia on a pro-forma basis.
Moody's report also said that the acquisition would enhance Sime Darby's European sales channel, given that NBPOL's 300,000 ton per annum (tpa) refinery in Liverpool is fully certified by the Roundtable of Sustainable Palm Oil, and complements Sime Darby's existing 450,000 tpa refinery in the Netherlands.
Moody's report further points out that while operations in PNG are exposed to regulatory and security risks, NBPOL's operating track record in PNG is long, and its plantations exhibit yields that are above average relative to industry peers. Its operations are also immediately EBITDA accretive, with NBPOL generating $97 million of reported EBITDA at a 17.3% EBITDA margin in 2013.
According to Moody's, NBPOL recorded a fresh fruit bunch yield of 21.7MT/ha for 2013, which is higher than that for Sime Darby (19.9MT/ha) and other large players, such as Golden Agri-Resources, Wilmar International Ltd (unrated), and Indofood Agri Resources Ltd (unrated).
On 9 October 2014, Sime Darby announced an offer for all of NBPOL's shares, valuing the equity at RM5.62bil. Including assumed debt of RM850mil in NBPOL's balance sheet, the cost would total RM6.47bil.
The indicated funding mix would be 80% debt and 20% from cash holdings, resulting in Sime Darby's gross leverage reaching 2.6 times to 2.9 times after the transaction. Such a range would be too high for its current A3 rating.
Nevertheless, Sime Darby has alluded to disposals of non-core assets and an IPO of its Motors division. These sources of funding, together with its continued tight control of capex would see leverage return to below Moody's downgrade parameters of 2.4 times to 2.6 times.
Moody's report further notes that while Sime Darby aims to fully own NBPOL, and has stated that it wants a minimum 51% stake in the company, Moody's believes that it is unlikely that full ownership will be achieved, as government-related entities currently hold around 22% of NBPOL and may wish to increase their ownership interest.
Moody's concludes that NBPOL is therefore likely to remain listed, but not in London, allowing the company to raise funds for expansion or make selective share placements to dilute Sime Darby's stake if required.