09/02/2010 (Palm Oil HQ), Jakarta - Fitch Ratings has today said in a just published Special Report that it expects the Asian palm oil producers it rates to maintain sound credit profiles in 2010.

Positive factors for the sector include stable crude palm oil (CPO) prices, due to balanced supply/demand dynamics and declining cost pressures from lower fertiliser costs (since H209). These factors should result in robust profitability and operating cash flow generation for palm oil producers in 2010. The agency notes that palm oil producers that have favourable plantation maturity profiles and well-managed plantation operations will be the main beneficiaries, including Malaysia's IOI Corporation Berhad (IOI Corp; 'BBB+'/Stable) and Indonesia's PT Ciliandra Perkasa (Ciliandra; 'BB-'/Stable). Both companies have been able to maintain sound financial profiles with robust balance sheets, despite difficult market conditions during Q408-Q209.

While edible oil supply remains tight going into 2010, the agency foresees that CPO prices will likely hold near current levels (around USD700/tonne) in the short-term. Consumption in populous countries, such as China and India, is expected to continue to drive demand growth for CPO, while further support could come from potentially higher biodiesel mandates following the upturn in oil prices. On the production side, while the agency expects Indonesia's CPO production to continue increasing, production from Malaysia would remain broadly stable due to its more mature plantations and the on-going replanting programme.

IOI Corp and Ciliandra already have strong plantation yields and low production costs (the latter is below the sector's average production cash cost of around USD300/t for efficient planters). Fitch expects credit metrics of IOI Corp and Ciliandra to improve in 2010 – due to higher EBITDA for Ciliandra on anticipated higher production from its improving plantation maturity profile, and from lower expected net debt for IOI Corp following its rights issue in December 2009. The expected credit metrics will remain appropriate for their current ratings.

Fitch also expects plantation-related capex of these companies to resume after being largely deferred in 2009. At the same time, downstream expansions are likely to take hold for the purpose of capturing CPO refining and added value margins. Companies with sizeable downstream activities, such as IOI Corp, typically generate more stable margins which make them less sensitive to unexpected adverse changes in CPO prices. For conglomerate-style companies, cash flow generated from the plantation business has been used for non-plantation investments, and Fitch believes this trend will continue.

Fitch notes the increasing awareness of corporate social responsibility and environmental issues through the Roundtable for Sustainable Palm Oil (RSPO) certification, and expects these practices to become more widespread. This is reflected in an increase in demand from end-consumers of CPO from sustainable sources, which could work in favour of companies such as IOI Corporation, since half of its plantations are already RSPO certified.

The full report, entitled "Asian Palm Oil Producers Outlook 2010," is available from the Fitch Ratings website, www.fitchratings.com.

Applicable criteria available on Fitch's website at www.fitchratings.com: "Corporate Rating Methodology", dated 24 November 2009.