RAM Ratings reaffirms Indonesia-based Bumitamaâ€™s rating
RAM Ratings has reaffirmed the AA3/Stable rating of Indonesia's Bumitama Agri Ltd’s (Bumitama or the Group) RM 2.0 billion 15-Year Islamic MTN Sukuk Musharakah (2014/2029).
The rating is supported by Bumitama’s fresh fruit bunch (FFB) production growth prospects (which are underpinned by a young tree profile and growing mature area) and good plantation management. Further, the Group’s credit metrics are within RAM’s expectations and anticipated to remain supportive of the rating, going forward. These strengths are, however, moderated by the Group’s relatively high production cost (as its young estates have not reached optimal production levels), inherent vulnerability to commodity prices, the challenging operating environment in Indonesia as well as rising pressure from environmental issues.
The Group’s credit metrics for 9M 2016 had remained intact despite a challenging 1H 2016, characterised by weaker yields (from the lagged effects of El Nino) and a soft average CPO selling price. Its annualised funds from operations debt coverage (FFODC) stood at 0.25 times for 9M 2016 and should remain firm (or possibly improve) for the rest of the year, supported by a seasonally stronger yield in the second half as well as presently high CPO prices. Meanwhile, Bumitama’s leverage – as measured by debt-to-operating profit before depreciation, interest and tax – had eased to 3.43 times as at end-September 2016 (end-2015: 3.55 times). This improvement partly mitigates our previous concerns on debt-financing growth outpacing earnings growth.
Looking ahead, Bumitama’s leverage and cashflow protection are expected to stay well-placed for the Group’s rating, supported by a firm CPO price outlook and a recovery in FFB output post-El Nino as well as a growing hectarage of mature palms. As Bumitama’s projected capex needs for 2017 are envisaged to be adequately supported by internal cashflows, its debt load is accordingly seen to remain largely unchanged.
Bumitama is an oil-palm plantation group based in Indonesia. It currently owns over 220,000 ha of land, mostly in Kalimantan, about 80 per cent of which comprise planted estates. Its trees as at end-September 2016 had a weighted-average age of about 7.9 years – oil palms are typically considered mature at four years and reach prime production around seven to 18 years of age.