Crunch time for Sime Darby Plantation as debt matures

IT is crunch time for Sime Darby Plantation Bhd (SDPB) as the planter seeks to raise cash while grappling with sizeable sums of maturing debt, much of which is due in the next 12 months.

The planter tells The Edge that it is in the process of refinancing its bank borrowings following a review of its debt profile. Some of the refinancing will be completed by the end of this year, it says.

“In addition, the group continues with its asset monetisation exercise, which includes the divestment of underperforming assets or assets that have achieved their full value potential for disposal, from which the proceeds will be channelled to reducing the group’s leverage,” says a company spokesman via email.

SDPB’s latest financial statements, released on Nov 29, show that its short-term debt had swelled past the RM6 billion mark as at Sept 30. In comparison, the figure was RM5.74 billion just three months prior and RM2.31 billion as at March 31.

The surge comes alongside a reduction in long-term borrowings. As at March 31, long-term borrowings stood at RM5.15 billion but this had fallen to RM2.08 billion three months later and dropped further to RM1.84 billion as at Sept 30.

Overall, in the six-month period between March 31 and Sept 30, SDPB saw its long-term debt reduce by RM3.31 billion while short-term debt had increased by RM3.75 billion.

Based on its 2018 annual report, the shift in borrowings from long to short term may be because of several term loans that are maturing in 2020.

Among others, the ninth and final instalment of a RM500 million seven-year unsecured term loan is likely due by end-2019. SDPB says the term loan is repayable over nine semi-annual instalments from 36 months after the first draw down dated June 26, 2012.

There are also two unsecured term loans worth US$300 million and US$100 million that are both repayable in full from 36 months after the first draw down date of June 22, 2017. That implies a due date falling in June 2020.

Another instance is a US$360 million unsecured term loan under a revolving credit-I facility that is repayable at maturity on June 19, 2020, based on SDPB’s 2018 annual report.

Notably, in terms of currencies, the largest movement of the company’s debt from long to short term came from US dollar-denominated borrowings — which make up about 80% of the total. Between March 31 and Sept 30, long-term US dollar borrowings reduced by RM3.31 billion while short-term US dollar borrowings increased by RM3.48 billion.

On a smaller scale, short-term ringgit-denominated borrowings increased by RM235 million to RM1.1 billion in that timeframe.

For the third quarter ended Sept 30, 2019 (3QFY2019), SDPB reported a net loss of RM243 million (of which RM275 million was from discontinuing operations) on RM2.82 billion in revenue. In the corresponding three-month period last year, it reported revenue of RM3.04 billion and a RM115 million net profit.

In 9MFY2019, SDPB recorded RM167 million in net profit versus RM556 million in the corresponding period in 2018. Its 9MFY2019 revenue stood at RM8.69 billion.

According to its cash flow statement, in 9MFY2019 SDPB generated net cash of RM1.19 billion from operating activities and ploughed back a net RM853 million into investing activities, primarily on property, plant and equipment.

However, in 9MFY2019 SDPB also drew down RM1.82 billion in loans while disbursing RM1.58 billion in loan repayments, finance costs and distribution to perpetual sukuk holders. It also paid RM459 million in dividends to shareholders and another RM74 million in other commitments.

That said, Maybank IB Research expects the planter to deliver a substantially stronger core net profit in the final quarter of FY2019.

“As for its asset monetisation exercise to raise about RM1 billion cash, we gather that the timeline has been pushed back to FY2020. There has been some delay in obtaining the relevant regulatory approvals in relation to land sales worth over RM500 million.

“Additionally, SDPB also targets to raise over RM600 million in FY2020 from the disposal of non-core and non-strategic assets,” says Maybank IB Research in a Dec 2 report.

Much of the 3QFY2019 losses were from about RM300 million worth of impairments, of which RM256 million were from its assets in Liberia, and RM44 million from Indonesia. The Liberian assets were worth RM288 million as at Dec 31, 2018.

SDPB tells The Edge that as at Sept 30, the remaining value of its Liberian assets amounts to RM15 million. This means that the proposed sale of the assets may yield a significant disposal gain when completed.

Its assets in Liberia encompass 220,000ha, or about a fifth of its land holdings worldwide. The company had signed a 63-year concession in 2009.

SDPB is currently finalising the sale of its Liberian assets to local player, Mano Palm Oil Industries, a subsidiary of Liberian household health and cleaning products manufacturer Mano Manufacturing Company. The sale is expected to be completed in the first quarter of next year. The expected sale price was not disclosed. However, even assuming a 25% discount to its latest audited book value, the sale of the Liberian assets may still yield over RM200 million in cash proceeds.

“In addition to more efficient capital management, asset monetisation is one of SDP group’s initiatives to deleverage. SDPB’s decision to exit our business in Liberia is to prevent further losses and to allow SDPB to reprioritise our financial resources towards higher value-creation projects,” says SDPB.

It is worth noting that apart from the assets in Liberia, SDPB has also reclassified about half a billion ringgit worth of assets as for sale in 3QFY2019. As at Sept 30, assets held for sale amounted to RM508 million versus RM41 million as at June 30.

Last Thursday, SDPB closed at RM5.50 per share,  a rise of 19.8% over the past one year. Its market capitalisation was RM36.49 billion.