MARC has assigned ‘AAAID/MARC-1ID’ and ‘MARC-1ID’ ratings to the novated RM1.5 billion Murabahah commercial paper/medium term notes programme 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 previous RM1.5 billion Murabahah CP/MTN Programme issued by KSB and RM150 million Underwritten Murabahah CP Programme issued by Guthrie will be novated by KSB and Guthrie to SDB effective on the listing of SDB on November 30, 2007. The ratings outlook for the rated debt is stable.

The ratings of the novated debt programmes reflect SDB’s strong pro forma combined credit profile and the favourable operational aspects of the merger. KSB and Golden Hope, in particular, possess several key characteristics in common, which make their inclusion in new group positive for SDB’s creditworthiness: both entities possess solid financial profiles and are leading domestic oil palm plantation players. With the inclusion of Guthrie, another established oil palm player, the increased scale and scope of the merger will 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 543,579 hectares of plantation land and 8,700 acres of land bank immediately available for property development over the next five years. Apart from plantations and property, the other core businesses of SDB will be represented by the existing 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 target companies on November 27, 2006. The target companies subsequently transferred all their assets and liabilities in exchange for redeemable convertible preference shares (RCPS) issued by SDB.  The transfer of assets and liabilities preceded capital reduction and distribution to shareholders at the target 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’ endorsement for the merger was obtained at the respective extraordinary general meetings (EGMs) of 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 target 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.