RAM Ratings has reaffirmed the AA2(s)/stable rating of Golden Assets International Finance Limited's IMTN of up to RM5.0 billion (2012/2027). Golden Assets is a funding vehicle, wholly-owned by Golden Agri-Resources Ltd (GAR or the Group). Singapore-listed GAR is principally involved in the cultivation of oil palm, milling and refining operations in Indonesia , and downstream operations in China . Through a Deed of Covenant, GAR irrevocably and unconditionally undertakes for the benefit of all Sukuk holders, to fulfil its payment obligations to Golden Assets to meet principal and profit payments or any amount falling due under the IMTN. The rating, therefore, reflects GAR's credit risk. The rating reflects GAR's position as the largest plantation company in Indonesia and second largest globally, backed by a sizeable planted area of 467,014 hectares (ha) as at end-September 2013 . The Group also has an integrated business model, being a long-time producer of various palm-based refined products. GAR's credit profile is further supported by its good productivity metrics. Its healthy fresh fruit bunch yields and superior oil extraction rates have translated into crude palm oil (CPO) yields of 4.7-5.4 metric tonnes per mature ha in the last 5 years – among the highest of that of its large regional peers. This is underscored by the Group's favourable plantation-management practices. Furthermore, its relatively low cost structure allows it to weather CPO price downcycles. GAR derives strong financial flexibility from its unencumbered plantations and short-term investments, and has a healthy liquidity profile. GAR's debt load rose to $2.44 billion as at end-September 2013 ( end-December 2012 : $1.85 billion ), due to heavy investments to expand its upstream and downstream operations. Similarly, net debt rose from $1.30 billion to $1.85 billion over the same period. Coupled with weaker CPO prices, the Group's funds from operations debt cover (FFODC) moderated to a respective 0.28 times and 0.18 times in FY Dec 2012 and 9M FY Dec 2013 . GAR's FFODC and operating cashflow debt cover (OCFDC) are projected to come in at 0.20-0.30 times in the next 2-3 years, compared to our expectations of 0.30-0.40 times last year. GAR's credit metrics still commensurate with its rating, although they give the Group little headroom to gear up further without supporting cash generation. The Group's rating is constrained by its fairly aggressive expansion plans. GAR's pre-financing cashflows have been in deficit for 3 out of the last 5 fiscal years. Apart from capex for new downstream facilities, the Group had, in the last 1 year, sunk a significant amount of capital into long-term investments, notably The Verdant Fund LP (a private equity (PE) fund with investments in plantation assets in Liberia and Indonesia ). RAM are cautious on GAR's investments in PE funds which are typically opportunistic and have finite life spans. Nevertheless, GAR is the sole investor in The Verdant Fund LP to date, and GAR also acts as a technical advisor to the Fund. GAR's credit profile is also moderated by its history of debt rescheduling. Being part of the Sinar Mas group (founded by the Widjaja family), GAR had to reschedule its debt as a result of other companies within the Sinar Mas group defaulting on their debts in 2001. GAR had since made efforts to ensure the independence of its operations. The Widjaja family has reduced its board representation from 5 to 3 members, and its effective stake in the Group from 75 per cent to below 50 per cent. The rating also takes into consideration GAR's exposure to the cyclical plantation sector as well as the more challenging operating environment in Indonesia .
Most Popular Stories
- Obama Administration Releases Proposal to Regulate For-Profit Colleges
- Apple, HP, Intel May Take a Hit from Slowdown in Smartphone Sales Growth
- Elizabeth Vargas' Husband Marc Cohn Addresses Rumors
- Keurig Adds Peet's coffee, Alters Starbucks deal
- FDIC Files Lawsuit on Behalf of Banks Allegedly Hurt by Libor Scandal
- Motley Crue's Nikki Sixx Marries Model Courtney Bingham
- U.S. to Relinquish Gov't Control Over Internet
- Chinese e-Commerce Giant Alibaba Gears for IPO in U.S.
- Some California Cities Seeking Water Independence
- Will Missing Malaysian Jet Prompt Aviation System Change?