(The following statement was released by the rating agency)
Jan 22 - Standard & Poor’s Ratings Services today assigned its ‘A’ rating to a proposed issue of U.S.-dollar-denominated sukuk by Sime Darby Bhd. (Sime Darby; A/Stable/--; axAAA/--), a Malaysia-based conglomerate. Sime Darby will issue the sukuk through Sime Darby Global Bhd., a Malaysia-domiciled special purpose vehicle that Sime Darby set up and owns. The rating on the sukuk is subject to our review of the final issuance documentation.
The proposed issue is the first drawdown under Sime Darby’s multi-currency US$1.5 billion equivalent sukuk issuance program, which Standard & Poor’s rated ‘A’ on Jan. 14, 2013. Sime Darby has indicated that it will use the proceeds from the sukuk issuance for capital expenditure, working capital requirements, and other general corporate purposes in accordance with the Sharia principle. The sukuk structure is based on the Sharia principle of Ijara. Plantation land assets will be used as the trust asset under this issuance. Under the program agreements, we believe Sime Darby has to make all payments needed to ensure that the issuer has sufficient funds to pay the sukuk holders on time.
The rating on Sime Darby Bhd. reflects our view that the group has a “strong” business risk profile and a “modest” financial risk profile, as our criteria define those terms. Sime Darby has good to strong competitive positions in three key businesses: plantation, industrial, and motors. These positions reflect the long record, large operating scale, and integrated operations of these businesses. Sime Darby’s increased appetite for investments, its higher tolerance for debt to fund capital expenditure, and execution risks for some new real estate projects temper the rating strengths.
The stable outlook reflects our expectation that Sime Darby’s diversified businesses will generate strong operating cash flows. This should offset likely lower earnings and moderately higher leverage due to large debt-funded capital expenditures. The outlook also reflects our expectation that the group will maintain a prudent approach to investments and capital expenditures. We expect Sime Darby’s debt-to-capital ratio to hover at about 35% in the fiscal years ending June 30, 2014, and 2015. This peak gearing is still in line with our assessment of a modest financial risk profile, and compares with about 28% in fiscal 2012.
-- Sime Darby Bhd.’s Proposed Sukuk Issuance Program Assigned ‘A’ Long-Term Rating, Jan. 14, 2013
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- General Criteria: Standard & Poor’s Approach To Rating Sukuk, Sept. 17, 2007