MARKET DEVELOPMENT
RPT-Fitch Revises Sawit Mas Sejahtera\'s Outlook to Positive; Affirms At \'AA (idn)\'
RPT-Fitch Revises Sawit Mas Sejahtera\'s Outlook to Positive; Affirms At \'AA (idn)\'
31/08/2013 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has revised Indonesia-based palm oil producer PT Sawit Mas Sejahtera (SMS) Outlook to Positive from Stable. Its National Long-Term Rating has been affirmed at 'AA (idn)'.
Key Rating Drivers
Improved funding access: The Outlook revision reflects Fitch's view of SMS's ultimate shareholder Golden Agri Resources' (GAR) improved access to debt and capital markets. GAR and subsidiaries have issued close to USD1bn of debt instruments in 2012. The financing success is positive for the company's rating, as the group's history of debt restructuring had been an important factor constraining its rating. Fitch views GAR's improved funding access is a direct benefit to its subsidiaries including SMS, as they mostly rely on inter-company loans for expansion plans.
Strong parental linkage: The ratings continue to reflect SMS's strong strategic and operational linkages with GAR. At end-2012 SMS contributed about 19% of the group's annual crude palm oil (CPO) production and 17% to GAR's planted area in H113. It also channels export sales through the group's trading arm, Golden Agri International (GAI), and extends inter-company loans, while GAR seconds key executives to SMS.
Downstream capacity underway: SMS plans to start commercial operation of its palm oil refinery in 2014, with about a 900,000 ton/year production capacity.
Management estimates up to 80% of internally-produced CPO will be processed into refined products, which will significantly alter the company's product mix which currently comprises mostly upstream palm oil products such as CPO and palm kernel oil (PKO). Fitch views this change positively, as it will enhance the group's operational integration and result in reduced costs due to lower export tax on refined products.
Cyclical risks: The ratings are constrained by the inherent cyclicality of CPO as a commodity. The group's large operating scale and established downstream operation help to mitigate the risks, as they provide economies of scale and stabilise profit margins. The rating also takes comfort from GAR's demonstrated capacity and willingness to lend financial support to SMS, given the latter's important contribution to the group.
Rating Sensitivities
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
-Evidence weakening linkages to GAR
-Downgrade of GAR's credit profile
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-Upgrade of GAR's credit profile
Fitch Ratings has revised Indonesia-based palm oil producer PT Sawit Mas Sejahtera (SMS) Outlook to Positive from Stable. Its National Long-Term Rating has been affirmed at 'AA (idn)'.
Key Rating Drivers
Improved funding access: The Outlook revision reflects Fitch's view of SMS's ultimate shareholder Golden Agri Resources' (GAR) improved access to debt and capital markets. GAR and subsidiaries have issued close to USD1bn of debt instruments in 2012. The financing success is positive for the company's rating, as the group's history of debt restructuring had been an important factor constraining its rating. Fitch views GAR's improved funding access is a direct benefit to its subsidiaries including SMS, as they mostly rely on inter-company loans for expansion plans.
Strong parental linkage: The ratings continue to reflect SMS's strong strategic and operational linkages with GAR. At end-2012 SMS contributed about 19% of the group's annual crude palm oil (CPO) production and 17% to GAR's planted area in H113. It also channels export sales through the group's trading arm, Golden Agri International (GAI), and extends inter-company loans, while GAR seconds key executives to SMS.
Downstream capacity underway: SMS plans to start commercial operation of its palm oil refinery in 2014, with about a 900,000 ton/year production capacity.
Management estimates up to 80% of internally-produced CPO will be processed into refined products, which will significantly alter the company's product mix which currently comprises mostly upstream palm oil products such as CPO and palm kernel oil (PKO). Fitch views this change positively, as it will enhance the group's operational integration and result in reduced costs due to lower export tax on refined products.
Cyclical risks: The ratings are constrained by the inherent cyclicality of CPO as a commodity. The group's large operating scale and established downstream operation help to mitigate the risks, as they provide economies of scale and stabilise profit margins. The rating also takes comfort from GAR's demonstrated capacity and willingness to lend financial support to SMS, given the latter's important contribution to the group.
Rating Sensitivities
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
-Evidence weakening linkages to GAR
-Downgrade of GAR's credit profile
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-Upgrade of GAR's credit profile