Loss-making Harn Len Corp Bhd, which is disposing of its 5,249.7-acre oil palm estate in Pahang, will continue its plantation business in the state, contrary to its earlier plan to exit the Peninsular Malaysia market.
A source tells StarBizWeek that Harn Len will only dispose of its Lian Hup estate in Rompin as announced on Bursa Malaysia on April 29. For context, the oil palm grower also owns the 5,229.5-acre Senang estate in Pahang.
“The decision is to sell only one estate. The other (Senang estate) will be kept. There are only two estates in Pahang,” he says.
Earlier in February, Harn Len via its property agent advertised in The Star to invite interested parties to bid for the Senang and Lian Hup estates.
The plantation giant said in a stock exchange filing previously that the proceeds from the proposed disposal would be used to pare down debt and fund the expansion of its core plantation business, among others.
As of Dec 31, 2018, Harn Len had outstanding creditors amounting to RM122.4mil. In comparison, the group only has cash and cash equivalents of RM1.06mil.
The company also said the excess cash from the disposals would allow the group to distribute dividends.
On April 29, Harn Len announced that it would sell its Lian Hup estate, together with a palm oil mill and buildings, for RM182.99mil to Main Market-listed FAR EAST HOLDINGS BHD.
The Lian Hup estate comprises seven parcels of oil palm plantation land, with the planted trees aged between three and 10 years - often considered the productive phase of the oil palm life-cycle.
The company’s cumulative cost of investment for the Lian Hup estate, mill and buildings is valued at RM72.2mil.
While Harn Lee will be selling the assets at a higher price compared to its initial investment, it is worth noting that the disposal will be done at below market valuations.
The sale price of RM182.99mil represents a discount of RM25mil or 12% to the market value of RM208mil.
“The disposal consideration (Far East’s bid) is the highest bid Harn Len received through the open tender process,” the company said in a filing.
Harn Len says that the disposal - expected in the fourth quarter of this year - will yield a gain on disposal of RM117.3mil, based on Lian Hup’s assets’ net book value of RM50.8mil.
On its part, Far East has said in a filing that the exercise is in line with its expansion plan, and would broaden its core income base through increased plantation acreage at a reasonable cost and at a strategic location.
Post-completion of the disposal, Harn Len will own 31,711.03 acres (including 9,607.53 acres held under joint-venture arrangements) and 5,229.5 acres of oil palm estates in Sarawak and Pahang, respectively.
The company, which had a market capitalisation of RM115mil as of May 3, is also involved in hotel operations and property investment.
By raising RM183mil from the Lian Hup asset disposal, Harn Lee plans to slash its outstanding payment to creditors by 79% or about RM97mil.
About RM54mil will be used to fund working capital, while RM18mil will be allocated for dividend payment.
The remaining RM14mil will be used to cover expenses related to the exercise.
The proposed sale of Lian Hup assets will be an important measure for the group, as it tries to de-leverage and improve its financial position.
However, the disposal will have a negative impact on the company’s revenue base, as Harn Len will cease to receive any earnings from the Lian Hup assets, moving forward.
“The Lian Hup assets collectively contributed 10% of Harn Len’s revenue for both financial year 2017 (FY17) and FY18,” the company said.
This has raised questions on how the company plans to address the impact of the disposal on its financial results for the current financial year.
Harn Len did not respond to StarBizWeek’s queries at the time of writing.
The oil palm grower fell into the red in FY18, after it recorded a net loss of RM21.17mil. The contraction in its bottom line was mainly due to lower crude palm oil (CPO) and palm kernel (PK) prices, coupled with the lower sales volume of CPO and PK during the 12-month period.
The group’s revenue also took a plunge in FY18, down by about 43% year-on-year to RM185.73mil.
Moving forward, Harn Len plans to strengthen its operations by improving the yield of its remaining oil palm plantation and purchasing more fresh fruit bunches to increase the production level of its palm oil mill.
Commenting on its prospects in an earlier filing, Harn Len said the plantation operations are still facing manpower problems due to a shortage of workers.
“Continuous recruitment activities are ongoing despite the worker shortage issue remaining the key challenge for the industry. On the other hand, corrective action has also been undertaken to improve crop yield from the fields and crop quality in order to improve CPO and PK extraction rates,” it said.
Meanwhile, on its property operations, especially the hotel division, Harn Len expects a challenging business environment, given the stiff competition from newer budget hotels and the decline in arrivals.
“Occupancy rates are not expected to improve significantly till the end of the year. The company continues to seek parties for the leasing of the hotel operations to reduce losses.“Efforts are continuing to dispose non-core assets to interested parties,” it added.