KUALA LUMPUR: Fitch Ratings expects plantation heavyweight IOI Corp to maintain the current operating profit even if crude palm oil prices (CPO) are to stabilise at RM2,500 a tonne.

The ratings agency had on Tuesday cited IOI Corp's large scale of operations, a favourable plantation profile, strong operating efficiencies and its integrated operations.

Fitch affirmed IOI Corp's Issuer Default Rating (IDR) at 'BBB+' while the outlook was Stable. The senior unsecured rating on IOI Ventures (L) Bhd's US$500mil notes due 2015, guaranteed by IOI Corp, has also been affirmed at 'BBB+'.

"Fitch believes that IOI Corp's proposal to hive off and list its property arm by Q214 is neutral to its credit profile. Its potentially lower leverage and positive free cash flows will offset a narrower business profile and potential reduction in scale (in terms of total assets)," it said.

It pointed out the Stable Outlook reflected IOI Corp's strong market position and operating metrics in its integrated CPO plantation and processing (resource-based manufacturing) business and Fitch's expectation that IOI Corp will generate positive free cash flows (FCF) from FY15 onwards and maintain its funds from operations adjusted net leverage below 1.75 times once its property business is hived off," it said.

IOI Corp has proposed to list its property business. Under the exercise, shares of its property business would be offered to its existing shareholders and underwritten by executive chairman, Tan Sri Lee Shin Cheng.

Fitch said the inflow of RM1.9bil cash to IOI Corp and the RM500mil debt being retained by the newly listed property company will result in a decline in FFO-adjusted net leverage to less than 1.75 times by end-FY14. This transaction is expected to be completed by Q2, 2014.

On the CPO business, it said IOI Corp had seen off a declining trend in CPO prices since Q4, 2012 to maintain its CPO operating profit in excess of RM450 per tonne.

Fitch noted that despite the declining trend in CPO prices and lower development property sales due to lower off-take of units, IOI Corp managed to keep financial leverage (FFO-adjusted net leverage) at 1.92 times as of June 30, 2012 (FY11: 1.24 times), within Fitch's FY12 rating guideline of 2.5 times.