This affirmation follows IOI's announcement of its proposed issuance of up to US$500 million in 5-years unsecured guaranteed second exchangeable bonds. The bonds are intended to cover inter-company borrowings, work capital needs, capital expenditures and investment opportunities.

"The higher debt level will weaken IOI's key credit metrics in the near term, but its overall financial profile remains consistent with the A3 rating," says Peter Choy, Vice President/Senior Credit Officer. "We draw further comfort from IOI's current strong liquidity of over MYR1.2 billion cash and liquid investment on hand. "

"This sound liquidity profile together with the favorable demand for palm oil, IOI's competitive position and its projected free cash flow generation support the current rating," adds Choy, lead analyst for the company.

While an investment opportunity has not yet been identified, Moody's expects IOI to continue to maintain its prudent financial policy while pursuing its growth strategy. Moody's also expects the company will not further increase its leverage beyond Debt/EBITDA of over 3.0x.

At the same time, the A3 rating is limited by IOI's exposure to the cyclical nature of palm oil and property businesses, and its track record of growth through acquisition.

Upward rating pressure could develop over time if IOI can demonstrate its ability to continue sustaining operating profits and EBITDA margin over the palm oil cycle. Upward pressure could also emerge if the company can show financial prudence while pursuing growth, such that EBITDA/Interest credit ratios
exceeding 12x and Total Debt/EBITDA averaging below 1.5x can be maintained.

Downward rating pressure could emerge if the profit margin shows a declining trend caused by falling CPO prices not being offset by downstream operations. Alternatively, a deteriorating financial position arose from an aggressive acquisitions policy or reducing its holding in its listed property arm resulting in worsening credit ratios, such that EBITDA/Interest falls below 7x and the Total Debt/EBITDA consistently exceeds 3x, could also result in downward pressure on the rating.

IOI Corporation Berhad, headquartered in Malaysia and listed on Bursa Securities Malaysia, is engaged in oil plantations and resource-based manufacturing including olechemical and specialty oils and fats. It is also one the of the property development and investment groups in Malaysia.

Moody's Investor Service