February 20, 2008 Moody’s assigns A3 rating to Sime Darby Singapore, January 11, 2013 -- Moody’s Investors Service has today assigned a senior unsecured issuer rating of A3 to Sime Darby Berhad (Sime Darby). The outlook for the rating is stable. This is the first time Moody’s has assigned a rating to Sime Darby. RATINGS RATIONALE Sime Darby’s rating recognizes the strong cash flow generated by its core oil palm plantation business which has long-established operations in Malaysia and Indonesia. The remaining 45% to 50% of EBIT is primarily derived from its Industrial business – the supply of heavy equipment to the coal mining and construction sectors, with a focus on Australasia and China – and its Motors business – a blend of car assembly, distribution and dealerships with a focus on high end cars in China, Malaysia, Singapore and Hong Kong. “Sime Darby is the largest listed palm oil plantation company and it is well-balanced in terms of upstream output and downstream refining and oleochemical capacity and its crop yields are among the best in the industry”, says Alan Greene, Moody’s Vice President - Senior Credit Officer. “Relative to other agribusinesses, the credit profile of palm oil is attractive given its position as the lowest cost vegetable oil, its high resistance to pests and diseases and the relative consistency of output over a period of 10 to 15 years once the trees reach maturity”, continues Greene who is also Moody’s Lead Analyst for Sime Darby. Palm oil is a traded commodity and crude palm oil prices exhibit volatility as well as cyclicality and seasonality, although recent low prices have remained well above cash costs of production. The industry is open to regulatory uncertainty given its importance to the leading producers – Indonesia and Malaysia, in terms of export income, to the leading consumers of cooking oil – India and China, with their own agrarian industries and food price concerns and to other governments with green fuel agendas, which direct subsidies towards the production of biodiesel from palm oil. Sime Darby’s diversification of revenues by geography is well-balanced with Malaysia, Australasia and China accounting for 69% of FY2012 revenues. While the customer concentration of Sime Darby’s businesses is low, its Industrial division and its Motors division depend on maintaining their supply relationships with Caterpillar and BMW, respectively. By contrast, both the sources of Sime Darby’s EBIT and the disposition of its non-current assets (NCA) are geographically skewed, with Malaysian-based operations representing 56% and 59% of total EBIT and NCA, respectively in FY 2012. MOODY'S INVESTORS SERVICE 2 The company’s importance to Malaysia is also reflected in its current shareholding pattern which includes government linked investment companies. As at 31 December 2012, the equity was 52.3% held by Permodalan Nasional Berhad (“PNB”), both directly and through unit trust schemes managed by PNB, and 11.9% by Employees Provident Fund (“EPF”) Although we do not regard Sime Darby as a government-related issuer (GRI), we deem systemic support from Sime Darby’s key shareholders to be strong and the rating reflects the importance of Sime Darby to the Malaysian economy and its savings programs. Sime Darby has now embarked on a five year strategy to grow its businesses, having largely spent the time since Malaysia’s large plantation merger in 2007 consolidating its portfolio of businesses. “All the divisions have strategic plans likely to incorporate inorganic as well as internal drivers of growth. Those of Property (outside of Malaysia), Energy & Utilities (E&U)and Healthcare seem unlikely to be self-financing in the near-term given that they are some distance away from the market leadership positions for which they strive,” comments Greene. Following negative free cash flow in FY 2012, the next 2-3 years are also expected to be FCF negative after allowing for a continued dividend payout of 50% of net profit and only modest expansionary capex on top of fairly high replacement investment requirements. Moody’s expects gross gearing to increase from the debt to capitalization level of 27% reported at FYE June 2012, but with management keeping to its declared limit of maximum debt to equity of 60% (equivalent to a debt:capitalization level of 37.5%). Currently, Sime Darby displays credit metrics that would support a moderately higher rating. However, Moody’s A3 rating provides Sime Darby with the required flexibility to execute its expansion programme, even under somewhat weaker CPO prices, while still maintaining its credit profile. We expect credit metrics to deteriorate in moderation, with adjusted debt/EBITDA expected to increase to over 2 times in the next two years, from 1.5 times in FYE June 2012. “While Moody’s expects the strategic growth plan to be accommodated within prudent financial parameters, sufficient flexibility is needed to cope with patches of slower cash flow generation such as that seen in recent months from weaker palm oil prices and from weaker coal prices, which have led to deferrals of mining equipment deliveries and a build-up of inventory”, says Greene. The rating outlook is stable reflecting the strong current credit profile and Moody’s expectation that a more aggressive growth strategy coupled with management’s commitment to a prudent financial policy can be accommodated in the rating in the near to medium term. The rating could be upgraded if the growth strategy is delivered in a conservative fashion or if cash generation is particularly buoyed by CPO prices returning back to the high levels seen in early 2011, resulting in an early decline in net debt levels. Credit metrics supporting such an upgrade could include i) EBITDA/gross interest in excess of 9x; ii) RCF/net debt improving to 30% to 35% and debt/EBITDA under 2.0x all on a sustained basis. MOODY'S INVESTORS SERVICE 3 The rating could be downgraded if the growth strategy results in management or the financial resources of the company being over-extended, which could be accompanied by CPO prices revisiting the low levels seen in the second half of 2009. Credit metrics that could indicate a downgrade could include i) EBITDA/gross interest falling below 6x-7x, RCF/net debt falling below 25% and debt/EBITDA greater than 2.4x – 2.6x on a sustained basis. Sime Darby is a Malaysian listed conglomerate with a current market capitalization of over USD18 billion. Dating back to 1910, the company took on its current, plantation-heavy character in 2007 when a new Sime Darby was created following a merger with two larger plantation companies. Apart from palm oil plantations, Sime Darby reports five other divisions – Motors, Industrial, Property, Energy & Utilities and Healthcare. Sime Darby recorded revenues of over USD15 billion in the year ended June 2012. The principal methodology used in rating Sime Darby was the Global Business & Consumer Service Industry Rating Methodology published in October 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. 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