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April 23 (The following statement was released by the rating agency)
Fitch has affirmed the National Long-Term rating of PT Sinar Mas Agro Resources and
Technology Tbk (SMART) at 'AA (idn)' and revised the company's outlook from Stable to
Positive. At the same time, Fitch has affirmed the ratings of bonds SMART in 2012Rp 1 trillion,
which will mature in 2017 and 2019, publishedas part of the ongoing public offering of Rp 3
trillion in'AA (idn)'.
Factors Affecting Rating
Improved access to funding: The Outlook revision reflects the improvement of
accessSMART-financing parent company Golden Agri Resources (GAR) to debt marketsand capital. GAR
and its subsidiaries have issued debt instruments aroundUSD 1 billion in 2012. The success of
the funding to support SMART's positive ratings, given the previous history of restructuringGAR
group debt is an important factor that limits the SMART ranking. A strong relationship with the
parent company: SMART rating reflectsstrategic and operational relationships strong with GAR,
where SMARTcontribute about 30% of the total production of crude and mature plantationspalm oil
(CPO) from the group. SMART also channeled through export sales unittrading of Golden Agri
International Group (GAI), and GAR ensure mostof debt SMART.
Large scale: The ratings also reflect the position of the GARhas the second largest palm oil
plantation in the world by areaembedded with the age profile of a good crop. This provides
supportthe ability of the group to generate strong cash flow in the periodmedium, which is also
supported by strong demand for palm oil and productsderivatives.
Decline in the debt ratio after 2013: On a consolidated basis, the ratio of debtmeasured by
the ratio of funds from operations (FFO) to total debt is 3.5xat the end of 2012. This is due to
significant new loan,coupled with reduced cash flow in line with CPO prices weakening. FitchGAR
expects debt ratio will decline after 2013, based onAssuming an average CPO price in USD
800/ton, increased oil productionoil, capital expenditure execution on time, and debt
Moderate risk of capital expenditure: Group remains focused capital expenditure forexpansion
of upstream and downstream activities, which included investments in upstream expansionoil palm
plantation project in Liberia. The project has a risk of executionmoderate, given the limited
track record in managing an estate groupabroad. Fitch views the group experience in the palm oil
businesslong enough and the fact that the project has received funding of USD500 million from
China Development Bank to fund the planting activities canmitigate risk.
CPO price volatility: Scale sizable group operations and downstream operationsestablished to
mitigate the risks inherent in the CPO industry, withprovide economies of scale and stabilize
profit margins. in line withincrease the volume of derivative products, EBITDA margin is
expected to be stable inlow-double-digit level (2012: 12.3%) in the medium term.
Negative: future developments that individually and collectively can
-Increased sustainable debt ratio above 3.5x. It candelays caused by the decline in the debt
ratio after 2013 due to capexsignificant overrun
Positives: The ability to execute timely capital spending, which encouragesdecline in the
debt ratio to below 2.5x within 12 monthsfront.