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MARC has assigned AAAID /MARC -1ID and MARC-1ID ratings to the novated RM1.5 billion Murabahah commercial paper/medium term notes programme (CP/MTN) and RM150 million Murabahah CP programme of Sime Darby Berhad (formerly known as Synergy Drive Berhad) (SDB). Arising from the merger of Golden Hope Plantation Berhad (Golden Hope), Kumpulan Guthrie Berhad (Guthrie), the former Sime Darby Berhad (now known as Kumpulan Sime Darby Berhad) (KSB) and their subsidiaries, the RM1.5 billion Murabahah CP/MTN Programme issued by KSB and RM150 million Underwritten Murabahah CP Programme issued by Guthrie were novated by KSB and Guthrie respectively to SDB effective on the listing of SDB on November 30, 2007. The ratings outlook is stable.
The ratings of the novated debt programmes reflect SDB’s strong credit profile and the favourable operational aspects of the merger. KSB and Golden Hope, in particular, possess several key positive characteristics in common that enhance SDB’s creditworthiness. Both entities are leading domestic oil palm plantation players with solid financial profiles. With the inclusion of Guthrie, another established oil palm player, the increased scale and scope of the merger allow SDB to consolidate its position as the world’s largest listed oil palm plantation group and potentially, Malaysia’s largest property developer. The combined group owns 1,368,429 acres of plantation land and 8,700 acres of land-bank immediately available for property development. Apart from plantations and property, SDB’s other core businesses are automobile, heavy equipment, power and utilities businesses of KSB. KSB is the third largest automobile dealer group globally for German automaker BMW, and the world's fifth largest dealer for heavy equipment maker, Caterpillar. The geographical diversity of these operations and the range of customer industries served should reduce the effects of business cycles to which many of the group’s individual activities are exposed, and impart earnings stability. Although Guthrie’s inclusion dilutes the credit strength of the newly created entity somewhat by virtue of its comparatively higher business and financial risk profiles, MARC is of the view that the overall business and risk profiles of SDB are commensurate with the AAAID / MARC -1ID ratings. Post-merger, MARC considers the achievement of strategic fit and a unified culture to be management’s main challenge given the number of entities involved in the merger. The group’s ability to retain its ratings and stable outlook is dependent on management’s capacity and capability to manage post-merger execution risk, and to retain a conservative capital structure and leverage profile as historically observed at KSB and Golden Hope. MARC has given significant credit to SDB’s ability to execute its post-merger integration roadmap for the group and to avoid the risk of potential diseconomies of scale that could arise on account of the complexity of the merger.
SDB made its offer to merge the three participating companies on November 27, 2006. The participating companies subsequently transferred all their assets and liabilities in exchange for redeemable convertible preference shares (“RCPS A”) issued by SDB. The transfer of assets and liabilities preceded capital reduction and distribution to shareholders at the participating companies, and was financed by the issuance of the RCPS. Shareholders of the target companies were given the option of equity in SDB through conversion of the RCPS into SDB shares or cash through redemption of the RCPS. SDB secured approval from the Securities Commission to proceed with the RM30 billion merger on July 16, 2007. Shareholders’ endorsements for the merger were obtained at the respective extraordinary general meetings of the participating companies. PNB, Amanah Saham Bumiputra and EPF which collectively hold 59.58% of the RCPS opted for the share exchange offer. A total number of 5.95 billion shares of SDB were issued and RM401.01 million was paid to the shareholders of the participating companies as compared to RM15.19 billion had all minority shareholders opted for the cash offer, thus allowing the enlarged SDB to maintain strong capitalisation.
Strengths
• Sime Darby Berhad’s strong credit profile and favourable operational aspects of the merger;
• Scale of its oil palm plantation and property development operations; and
• Geographical diversity of its other businesses and customer base. Challenges/Risks
• Management’s capacity and capability to manage post-merger execution risk as well as to retain a capital structure commensurate with its rating level.
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