KUALA LUMPUR: Sime Darby Berhad’s intended listing of its plantation and property units as standalone entities will leave the company’s rating uncertain, said Fitch Ratings.
The ratings agency said it would reassess the company’s credit profile once further details about its post-listing shareholding and debt structure became available.
“The listed entities will bear the Sime Darby brand name and focus on their respective core activities.
“The company intends to keep its key heavy equipment (industrial) and automotive (motor) dealership businesses and to retain its listed status. However, details regarding proposed shareholdings and debt structures for the various entities are currently unavailable,” said Fitch in statement yesterday.
Sime Darby is said to be considering its options, implementation measures and timelines, and is likely to provide more information after its board’s review of its half-year results this month.
On January 26, Sime Darby announced plans to create plantation and property pure plays to be listed on Bursa Malaysia.
Fitch rates Sime Darby based on its consolidated profile with a key rating driver, including the company’s diversification and scale from operating across several business lines and geographies.
The rating also factors in the company’s strong operational and strategic linkages with its key subsidiaries, including the plantation and property divisions, in addition to its 100 per cent ownership in the subsidiaries.
“Fitch does not expect Sime Darby’s consolidated credit profile to be affected if it retains a majority stake in the plantation and property units upon listing, as this would imply that linkages remain intact.
“However, should Sime Darby lose its controlling stakes in the units, with the intention of creating independent plantation and property-focused entities with minimal operational or strategic overlap with the remaining business, Sime Darby’s cash flows would be significantly reduced and it would likely see higher earnings volatility, leading to a weaker business profile. Fitch sees a risk to the company’s ratings in such a scenario,” it added.
The plantation and property divisions contributed around 70 per cent of Sime Darby’s consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) in the financial year ended June 2016.
Its Ebitda declined by around 20 per cent over the three-year period to the 2016 financial year. However, the drop was higher at 45 per cent when excluding the plantation and property units.