(The following statement was released by the rating agency)
SINGAPORE, July 01 (Fitch) Fitch Ratings has affirmed Malaysia-based IOI
Corporation Berhad's (IOI) Issuer Default Rating (IDR) at 'BBB+'. The Outlook is
Stable. The senior unsecured rating on IOI Ventures (L) Berhad's USD500m notes
due 2015, guaranteed by IOI, has also been affirmed at 'BBB+'.
Fitch believes that IOI's proposal to hive off and list its property arm by Q214
is neutral to its credit profile. Its potentially lower leverage and positive
free cash flows will offset a narrower business profile and potential reduction
in scale (in terms of total assets).
The Stable Outlook reflects IOI's strong market position and operating metrics
in its integrated crude palm oil (CPO) plantation and processing (resource-based
manufacturing) business and Fitch's expectation that IOI will generate positive
free cash flows (FCF) from FY15 onwards and maintain its FFO adjusted net
leverage below 1.75x once its property business is hived off
KEY RATING DRIVERS
Property business listing: The shares of its property business will be offered
to its existing shareholders and underwritten by Executive Chairman, Tan Sri Lee
Shin Cheng. The inflow of MYR1.9bn cash to IOI and the MYR500m debt being
retained by the newly listed property company will result in a decline in
FFO-adjusted net leverage to less than 1.75x by end-FY14. This transaction is
expected to be completed by Q214.
Strong CPO business: IOI has seen off a declining trend in CPO prices since Q412
to maintain its CPO operating profit in excess of MYR450 per metric tonne (MT).
Fitch expects IOI to maintain the current operating profit/MT, even if CPO
prices were to stabilise at MYR2,500/MT, on account of its large scale of
operations, a favourable plantation profile, strong operating efficiencies and
its integrated operations.
Moderate financial leverage: Despite the declining trend in CPO prices and lower
development property sales due to lower off-take of units, IOI managed to keep
financial leverage (funds from operations (FFO)-adjusted net leverage) at 1.92x
as of 30 June 2012 (FY11: 1.24x), within Fitch's FY12 rating guideline of 2.5x.
Low subordination risk: Debt issued by IOI is exposed to limited contractual
subordination risk as its consolidated debt is predominantly unsecured.
Furthermore, the holding company possesses majority stakes and management
control of key operating subsidiaries, generates recurring cash flows from its
plantation businesses, and the MYR1.26bn holding company's cash as of 30 June
2012 offers a coverage of 23% of holding company's and its guaranteed debt.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include
-Major debt-funded investment or changes in capital management leading to
FFO-adjusted net leverage being sustained at over 1.75x (lowered from the FY12
rating action guideline of 2.5x) and a significant worsening of its business
-IOI's inability to generate positive FCF by FY15
Positive: No positive rating action is expected in the medium term due to
exposure to cyclical risks and business concentration risk.
Nandini Vijayaraghavan, CFA
Fitch Ratings Singapore Pte Ltd
6 Temasek Boulevard
#35-05 Suntec Tower Four
Shahim Zubair, CFA
+61 2 8256 0325
Media Relations: Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email:
Additional information is available on www.fitchratings.com
Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012, are
Applicable Criteria and Related Research:
Corporate Rating Methodology
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