Sime’s plan to reduce RM19.7bil debt; may monetise assets, place out shares

KUALA LUMPUR: Sime Darby Bhd, which has businesses ranging from plantations to automobile distributorships, may monetise its assets or place out shares to targeted groups in efforts to pare down debt of RM19.7bil, which has risen as a result of the acquisition of Port Moresby-based New Britain Palm Oil Ltd (NBPOL).

Its president and group chief executive Tan Sri Mohd Bakke Salleh said at a media briefing following the release of its first-quarter ended Sept 30 financial results that other options included a rights issue. This was being studied by asset manager Permodalan Nasional Bhd (PNB), which controls Sime Darby.

“We are working hard to reduce our borrowings and there are a number of options at our disposal that we can pursue. These include a rights issue, monetisation of assets or placing out our shares to targeted groups.”

Bakke said the options would be presented to the shareholders at the right time.

Part of the steps taken to pare down the company’s debt was the announcement of an RM3bil Islamic bond programme on Wednesday. This would reduce the gearing ratio to 0.5 times from 0.6 times.

Bakke said, ideally, the gearing ratio should be 0.3 times. He added that the company was in the midst of submitting documents to the regulators for the bond programme.

Despite the rights issue being an option, it has been reported that PNB, which holds a 53.2% stake in the company, was not in favour of the exercise to raise up to RM6bil. The asset manager prefers an option where Sime Darby “sweats” its assets better and brings higher returns than at present.

Besides PNB, the Employees Provident Fund, which holds a 13.5% stake, would be the other major shareholder that would have to cough up the money should the company decide to take the rights issue option. The reluctance of PNB is understandable, as the asset manager would have to fork out some RM3bil for its portion in order to not see a dilution of its stake.

Although no key performance index or timeline has been set, Bakke did not deny that the outlook remains challenging due to volatile market conditions and the weak ringgit.

“The acquisition of (NBPOL) has caused the gearing ratio to balloon to 60%.

“We raised over RM5bil cash from banks and topped up RM1bil from internal funds for the asset,” said Bakke, adding that about 60% of the RM13.6bil long-term borrowings were denominated in US dollars.

He pointed out that while the assets were translated and spread out in other major currencies, the weak ringgit would still impact outstanding loans. “Our US-dollar debt is only due in 2018. So, we still have time for that and hopefully the ringgit will strenghthen to RM3 levels,” said Bakke, adding that the company had valuable assets in hand and could dispose them at a good price due to the strength of other currencies.

He reiterated that plans to list the auto division had been put on hold due to the soft market conditions.

Bakke was not concerned that Indonesia remained the largest palm oil producer, explaining that the country’s growing population meant that much of the produce went to the food sector.

He brushed aside concerns that the London property market had softened, saying that demand for properties in locations such as Battersea Power Station, in which Sime Darby has a 40% stake in the joint venture to develop the multi-billion-ringgit project, was still high. Bakke said prices were still trending upwards.

Sime Darby’s net profit dipped 34.4% to RM328.4mil for the first quarter ended Sept 30, compared with a year ago, on the back of revenue that increased marginally to RM10.17bil from RM10.12bil.

Basic earnings per share dropped to 5.29 sen from 8.25 sen. No dividend was declared for the quarter under review.

Bakke assured shareholders that the company’s minimum policy payout remained at 50% of net profit. “For the financial year that just ended, the payout ratio was 67%. So, it’s still premature to determine this now,” he said, referring to future dividend payouts.

Going forward, with the continued contraction of the mining industry in Australia, slowdown in China, weak ringgit and crude palm oil prices averaging at RM2,250 per tonne, the company intends to achieve a net profit of RM2bil for the financial year 2016.

The stock closed down one sen at RM8.06 yesterday, giving it a market capitalisation of RM50.1bil.