[RAM] RAM Ratings: IJM Corp's divestment of plantation arm has no impact on AA3/Stable sukuk rating

RAM Ratings does not expect the planned disposal of IJM Corporation Berhad’s (IJM Corp or the Group) stake in its plantation arm, IJM Plantations Berhad (IJMP), to have any immediate impact on the AA3/Stable rating of the Group’s RM3 bil Sukuk Murabahah Programme. On 11 June 2021, IJM Corp announced that it had entered into a sale and purchase agreement with Kuala Lumpur Kepong Berhad, for the disposal of the Group’s 56.20% stake in IJMP for RM1.53 bil in total. The disposal is expected to be completed by 3Q 2021.

The exercise will enable IJM Corp to streamline its operations to focus on its core construction, property and infrastructure businesses, which are more synergistic among themselves. That said, the divestment will reduce the Group’s business diversity as IJM Corp will no longer enjoy earnings contributions from its plantations. Historically, plantation earnings have been volatile – the result of fluctuating crude palm oil (CPO) prices and IJMP’s exposure to foreign-currency-denominated debts. While IJMP accounted for a sizeable 35% of the Group’s pre-tax profit in FY Mar 2021, the former incurred pre-tax losses in both FY Mar 2019 and FY Mar 2020.  

After the disposal of IJMP, the Group’s projected adjusted funds from operations debt cover could stay unchanged at around 0.13 times in the near term. This is because the absence of IJMP’s contributions will be offset by its debts. The anticipated RM1.53 bil of sale proceeds will also boost IJM Corp’s cash coffers to about RM3.72 bil and ease its net gearing ratio to about 0.24 times (end-March 2021: 0.41 times). The longer-term impact on the Group’s financial profile will hinge on the utilisation of these proceeds. Of the total, RM730 mil has been earmarked for future investment opportunities and as general working capital.

Analytical contacts
Karin Koh, CFA
(603) 3385 2508

Thong Mun Wai
(603) 3385 2522