RPT-Fitch revises Sawit Mas Sejahtera's outlook to Positive, affirms at 'AA (idn)'
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(The following statement was released by the rating agency)
Aug 30 - Fitch Ratings has revised the outlook PT Sawit Mas Sejahtera (SMS) to Positive from Stable. National Long-term rating was affirmed at 'AA (idn)'.
Factors Supporting rating
Access to better funding: Revised outlook reflects the improvement of access to finance major shareholder Golden Agri Resources (GAR) against the debt and equity markets, with the GAR and its subsidiaries successfully issued debt instruments amounting to USD 1 billion in 2012. This implies that bond investors are no longer shy away from the group because of the history of the debt restructuring, which previously limited the ability of the group to get funding. Fitch considers that access to finance has improved GAR is a benefit that directly impact its subsidiaries, including SMS, because most companies rely on inter-company debt for expansion plans.
A strong relationship with the parent company: The ratings reflect the strategic and operational relationships strong with GAR. SMS contributed about 19% of the annual production of crude palm oil (CPO) and 17% of the planted area in the GAR H113. SMS is also channeled through export sales of the group's business units, Golden Agri International (GAI), whereas GAR provide inter-company debt and put management in SMS.
Downstream capacity development: SMS will start commercial operation of refinery facilities in 2014, with a capacity of 900 thousand tons / year. Management berestimasi maximum 80% of the internal CPO production will be further processed into downstream products, which will change the product composition of the majority of the company's significant upstream products such as palm oil and palm kernel oil (PKO). Fitch views this positively, because it increases the operational integration of group and lower costs due to reduced export tax rate for downstream products.
Cyclical risk: Rating constrained by the cyclical risks inherent in CPO as a commodity product. Large-scale enterprise group, with operations already established downstream helps mitigate risk, as this provides economies of scale and stability of operating margins. SMS rating is also supported by the ability and willingness of GAR that have been proven to provide financial support to the SMS, the SMS that are important to consider contributing to the group.
Negatives: Development in the future that could, individually or collectively, lead to a downgrade include:
- The weakening of ties with GAR
- Decrease in credit profile GAR
Positive: Increased credit profile GAR
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