Golden Agri-Resources Ltd -- Moody's: Golden Agri's long-term financing is credit positive but increases event risk

"Numerous positives arise from Golden Agri's recent debt issuance, including a stronger liquidity position and greater stability for the company's capital structure, which was historically reliant on short-term, secured debt", says Alan Greene, a Moody's Vice President and Senior Credit Officer.

Golden Agri reported USD479 million of cash, cash equivalents and short-term investments at the end of Q3 2012. Since then, additional funds have come from USD400 million of convertible bonds issued on 4 October 2012 and the drawdown of the IMTN, completed on 19 November 2012.

Golden Agri's wholly-owned subsidiary, Golden Assets International Finance Limited, has established a 15-year RM5 billion IMTN programme. The first tranche of RM1.5 billion was issued with a tenor of five years. The convertible bond came as a five year, non-call three year bond.

Gross debt will increase at the end of FY2012 as a result of the IMTN drawdown and convertible bond, although some portion of the proceeds are expected to be temporarily used to pay down short term working capital loans. However, Golden Agri's credit metrics are strongly positioned for its rating, where Debt/EBITDA and EBITDA/Interest ratios are expected to remain comfortably above its downward rating triggers unless CPO prices fall below USD700/tonne on a sustained basis.

Overall financing cost is also expected to reduce as the convertible bond is priced at 2.5% and the IMTN's profit rate is 4.35% before cross currency swap. Golden Agri borrowed long-term USD at rates between 2.9% and 6.5% in 2011.

"After mainly dealing with Indonesian and Chinese banks in the past and, more recently, lenders in Europe and Japan, the issuance continues Golden Agri's broadening of its banking and capital market relationships", says Greene, who is also the Lead Analyst for Golden Agri.

"The unsecured nature of recent issuance also alleviates our previous concern over Golden Agri's high proportion of secured debt", adds Greene.

Golden Agri's secured debt comprised 99% of its total debt as at 31 December 2011. The ratio fell to approximately 91% in Q3 2012 after the issuance of IDR1 trillion (approximately USD106 million) of local unsecured bond from PT Smart Tbk, one of Golden Agri's key operating subsidiaries in Indonesia. Moody's expects the proportion of secured debt to total debt to fall further to about 50-60% at the end of FY2012 with the IMTN and convertible bond.

"However, the heightened financial flexibility increases event risk as it is uncertain how Golden Agri will spend its war chest of cash. Potential acquisitions have become a more likely option with the increased liquidity", says Greene.

Golden Agri has apportioned 80% of the net proceeds from the convertible bond for capital expenditure. It seeks to grow its operations through upstream and downstream expansion, as well as by improvements to its logistics and infrastructure.

Golden Agri, registered in Mauritius, is the largest listed oil palm plantation company in Indonesia. Listed on the Singapore Stock Exchange in 1999, it mainly operates in Indonesia and China and is 49.95% owned by the Widjaja family.

Alan Greene VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service Singapore Pte. Ltd.50 Raffles Place #23-06 Singapore Land TowerSingapore 48623 Singapore JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Philipp L. Lotter MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Releasing Office: Moody's Investors Service Singapore Pte. Ltd.50 Raffles Place #23-06 Singapore Land TowerSingapore 48623 Singapore JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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