KUALA LUMPUR (Feb 11): Malaysian Rating Corporation Bhd (MARC) has assigned a preliminary AA-IS rating to Sime Darby Bhd’s proposed RM3 billion perpetual subordinated sukuk programme, although its outlook stood at negative.

In a statement today, the rating agency said that the negative outlook was consistent with the revised outlook on the RM500 million Islamic commercial paper/Islamic medium term note (ICP/IMTN) programme to negative from stable.

MARC noted that it has also affirmed the MARC-1 ID/AAA ID ratings on the existing RM4.5 billion IMTN programme and the RM500 million ICP/IMTN programme, with a combined limit of RM4.5 billion.

The negative outlook revision factors in the slower than expected pace of measures initiated to address the substantial increase in group borrowings, following the debt-funded acquisition of New Britain Palm Oil Limited (NBPOL) for RM6 billion in March 2015.

“Some of the group’s earlier plans to pare down its debt have been postponed owing to weak market conditions [and its] key business segments have continued to face a tough operating environment, leading to weaker earnings and cash flow generation that have put pressure on its credit metrics,” MARC said.

The rating agency further noted that Sime Darby’s plan to issue the perpetual sukuk is a major first step to improve the group’s liquidity profile, in which the initial proceeds from the issuance would be utilised to meet upcoming financial obligations.

“As the perpetual sukuk receives 50% equity credit in line with MARC’s approach in evaluating hybrid securities, group debt-to-equity would improve to 0.53 times from 0.60 times, assuming the full drawdown of RM3.0 billion is utilised for debt repayment,” it added.

MARC also said that it remains concerned on the implementation timeline the group has set on its initiatives to strengthen its balance sheet – including equity placements, monetising non-core assets and divestments – given the prevailing challenging conditions.

At 11.18am, it traded 0.78% or 6 sen higher at RM7.74, with 1.72 million shares changing hands, making Sime Darby among the top gainers in mid-morning trade.

The group has a market capitalisation of RM48.59 billion.