Credit Quality Of Asian Palm Oil Producers Weakens On Soft Cpo Prices: Moody's

By Tengku Noor Shamsiah Tengku Abdullah SINGAPORE, Oct 7 (Bernama) -- Moody's Investors Service says that the credit quality of palm oil producers across Asia is weakening as oversupply is muting crude palm oil (CPO) prices and hampering deleveraging efforts. Moody's analysis is contained in its latest edition of Inside ASEAN by Alan Greene, a Moody's vice president, senior credit officer and a lead analyst on Asian palm oil producers. Greene noted that average CPO prices fell more than 30 per cent to US$506.12 /tonne (RM2,191/tonne) in the second quarter of 2015 from Q2 2012, and averaged US$477.52/tonne (RM2,067/tonne) in July/August. "We expect CPO prices to remain under pressure over the next 18 months, with vegetable oil markets oversupplied and demand soft," he said. Lower prices have muted cash generation, reflected in the recent negative rating actions on three palm oil companies: Golden Agri-Resources Ltd (Ba3 negative), Sime Darby Berhad (A3 negative) and IOI Corporation Bhd (Baa2 negative), notes the rating agency. Inside ASEAN also examines the impact of the recent currency depreciation of the Malaysian (A3 positive) ringgit and Indonesian (Baa3 stable) rupiah. Moody's noted that the ringgit depreciation is a symptom of declining export revenues, capital outflows and worsening sentiment towards Malaysia. It said these are negatively impacting key credit buffers such as the country's current account surplus, foreign reserve coverage and economic growth trajectory. However, the rating agency expects the direct impact of the ringgit depreciation to be manageable for the Malaysian sovereign due to the low proportion of government debt denominated in foreign currencies. Moody's said the Indonesian rupiah's recent 17-year low is credit negative for property developers in Indonesia because two-thirds of their debt is denominated in US dollars but their earnings are entirely in rupiahs. It said Malaysia and Indonesia will remain affected by the continued broad weakness in commodities prices as they are net exporters of both oil and metals. Around 30 per cent of Malaysia's government revenues and over 20 per cent of exports derive from oil and gas. Additionally, net metals exporter Indonesia will face further muted demand and revenues, notes the rating agency. Furthermore, slowing momentum in China (Aa3 stable) has led Moody's to lower forecasts for China's real gross domestic product (GDP) growth to 6.8 per cent this year from 7.4 per cent in 2014. Moody's expects growth in 2016 to weaken further to 6.3 per cent, versus its earlier projection of 6.5 per cent. The resultant softer demand from China, which remains the world's second-largest economy, combined with still lacklustre conditions in Europe and Japan (A1 stable), will weigh on exports from and output in ASEAN, said Moody's. Specifically, it said fiscal underspending in the Philippines (Baa2 stable), and weaker exports despite increased fiscal spending for Thailand (Baa1 stable) continue to drag on GDP growth in both countries. It said weaker trade and financial flows have also resulted in a lower GDP forecast for Singapore (Aaa stable). --BERNAMA