Conglomerate raises more than RM3bil, several monetisation exercises in the pipeline

PETALING JAYA: Sime Darby Bhd’s aggressive deleveraging efforts over the past year are beginning to bear fruit, as the conglomerate is on track to eliminate a large chunk of its RM11bil debt pile.

After a tumultuous 15-month which saw the group being bogged down by the sheer scale of its near-term debt obligations, Sime had undertaken a series of monetisation exercises which could see it unlock cash for the repayment of borrowings and for working capital.

Over the last 12 months, the group had raised more than RM3bil in cash from a share placement and asset sales. Sime had reduced its short-term borrowings exposure by RM1.9bil during its past financial year ended June 30, 2016 (FY16). During the year, borrowings due within 12 months were reduced to RM4.4bil from RM6.3bil previously, while borrowings due after five years increased to RM4.3bil from RM3.7bil.

Additionally, the group had borrowed RM6bil to fund the acquisition of New Britain Palm Oil Ltd, a third of which comprises of short-term debt.

Lower commodity prices, the weaker ringgit and bearish consumer sentiment compounded the impact of the new debt load, as Sime’s cash flows came under pressure, prompting Moody’s Investors Service to downgrade its debt rating to Baa1from A3 in March.

However, the group seems to be back on track after a series of asset-monetisation proposals.

Among others, the group raised RM2.36bil from a recent private placement by issuing 316.35 million shares. Half of the proceeds would be used for the repayment of debt, while the rest would go towards its capital expenditure and working capital needs.

In its annual report, Sime disclosed that it had monetised RM767.4mil worth of assets across multiple segments. Among them is a net disposal gain of RM447.1mil from the sale of two Singapore properties to the Blackstone Group and the sale of development land totaling 238 acres in Semenyih for RM254.4mil.

The group is also planning to create a real estate investment trust (REIT) platform to generate a new recurring income source. On Monday, the group announced that it had entered into an implementation agreement with Japan Residential Asset Manager for the reverse takover of Saizen REIT.

The arrangement includes the sale and leaseback of 20 industrial properties in Australia for AU$355.8mil (RM1.12bil).

“The acquisition of Saizen REIT will allow Sime to monetise the Australian properties and deleverage its balance sheet. WIth this platform, Sime has greater flexibility in future fund-raising exercises to build a sizeable international portfolio of assets,” said Maybank Investment Bank Research in a report.

Fitch Ratings had revised its outlook on Sime to “stable” from “negative” yesterday and lauded its degearing exercise.

“The revision is made following Sime’s announcement of its successful share placement, the proceeds of which will help the company lower its leverage. In addition, the outlook for its principal oil palm plantation business has improved significantly, following a recovery in crude palm oil (CPO) prices this year. Higher cash flows from the plantation business will also support deleveraging for the group in our view,” it said in a statement.

Fitch had affirmed Sime’s long-term foreign and local currency issuer default ratings atBBB+. It had also affirmed the group’s senior unsecured rating and its sukuk issue at BBB+. Going forward, the group is optimistic that Sime is set to deliver an improvement in its financial performance after a tough FY16.

“For example, the rising prices of commodities offer some indication that business conditions may be recovering. CPO prices have trended higher from the lows of mid-2015, while palm oil stocks are expected to face a severe reduction, keeping world supplies tight in the foreseeable future,” said Sime’s president and group chief executive officer Tan Sri Mohd Bakke Salleh in the annual report.

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