Moody's Investors Service has granted Asia Pacific's palm oil industry a positive rating outlook for the next 12-18 months.
In a new report, Moody’s believes that a rapid rise and continued high prices for crude palm oil during the past 18 months have strengthened balance sheets of Asia’s palm oil producers. This has led to many producers buying more plantations and increasing planting of greenfield properties.
"Execution risks from expansion in 2009 are likely to be lower than in the past year,” comments the report’s lead author, Peter Choy, Moody’s vice-president and senior credit officer.
He adds that most producers will be focusing on organic growth, and will be delaying downstream bio-diesel projects due to higher feedstock costs.
“The positive outlook for the sector will not necessarily translate into upgrades for rated firms because the market is at a cyclical peak, and some issuers are still integrating earlier expansions or are still small,” Choy continues.
He adds: "Moody's will also continue to monitor issuers' corporate governance and financial strategies, which affect their rating outlook."
The report’s second author, Wonnie Chu, a Moody’s analyst, comments: “"Recent regulatory changes may have a negative impact on bio-diesel prospects, but such output accounts for a negligible share of issuers' earnings."
She continues to explain that due to the sharp reduction in India’s import duty on both refined and crude palm oil should support demand from the Malaysian and Indonesian issuers.
It is likely that the rated palm oil companies face no immediate refinancing risks, and have relatively good levels of liquidity, according to Moody’s Investor Services latest forecasts.
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