Sime Darby’s sukuk issue attracts strong order book

KUCHING: The recent announcement of Sime Darby Bhd’s (Sime Darby) successful pricing of its first US$800 million sukuk issue will bode well for the group with positive spillover effects into the group’s order book.

“We gather that the sukuk will be issued in two tranches of US$400 million with a five-year tenure and the balance US$400 million with a 10-year tenure respectively,” noted analysts at Kenanga Investment Bank Bhd (Kenanga Research).

“This is part of its Multi-Currency Sukuk Programme with a limit of up to US$1.5 billion.

“Pricing for the five-year tenure, the sukuk was at 130 basis points (bps) above US Treasuries rate or 2.053 per cent while the 10-year tenure sukuk was at 145bps above US Treasuries rate or 3.290 per cent,” it added.

“The whole sukuk was rated A by Fitch Ratings, A by Standard & Poor’s and A3 by Moody’s.”

Kenanga Research understood that Sime Darby’s sukuk issue attracted a strong order book of more than US$8 billion or an oversubscription of 10 times.

Proceeds from the debt would be used to finance Sime Darby’s capital expenditure, working capital requirements and general corporate purposes among others.

“We are positive on the news as both the sukuk interest rate of 2.053 per cent and 3.290 per cent are lower than the existing interest cost of Sime Darby, which is believed to be around 5.5 per cent,” the research firm added.

“This should result in estimated interest rate savings of 2.67 per cent or about RM65 million.

“Sime Darby’s current net gearing is still comfortable at 18 per cent as at the end of September 2012 and we expect it to remain below 20 per cent for both financial year 2013 estimates (FY13E) and FY14E.” Despite Kenanga Research’s positive view on the sukuk issue given its attractive pricing, Sime Darby’s near term outlook would still be very much influenced by the current low crude palm oil (CPO) prices.

“We believe its results for the second quarter of the financial year 2013 could disappoint as it should reflect the low CPO price impact of below RM2,250 per metric tonne.

“However, the group’s long-term growth remains intact premised on the longer term bullish CPO price outlook and good earnings support from its non-plantation divisions.” As such, Kenanga Research maintained its FY13E-FY14E earnings at RM3.68 billion to RM3.83 billion, leaving its estimates intact.

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