The assets sale is aimed to bring its gearing level down to 0.2 times, says CEO

by NG MIN SHEN / pic by ISMAIL CHE RUS

Boustead Plantations Bhd is considering selling plots of land worth up to RM1.2 billion over the next three years, to pare down the planter’s debt.

The assets sale is aimed to bring its gearing level down to 0.2 times from around 0.5 times currently, said CEO Chow Kok Choy (picture).

According to Chow, Boustead Plantations’ present gearing ratio is not sustainable, given that production costs are high and outlook for the palm oil industry remains challenging.

“Our target is to monetise about RM1 billion to RM1.2 billion worth of land over the next three to four years, so by 2022, we should bring our gearing down to 0.2 times.

“Our borrowings, together with the acquisition of land in Sabah which will come in next month, will bring gearing to about 0.5 times,” he told reporters after the company’s AGM in Petaling Jaya yesterday.

“We have land with potential for property value, (so) we have a plan to reduce our gearing by monetising them. Most of these pieces of land are very valuable because they’re near towns, so this is one of the areas we’re looking at where we can reduce our borrowings,” he added.

He, however, did not reveal the location or size of the land parcels.

Chow said the norm in plantation companies is to have gearing ratios of between 0.2 and 0.3 times. In the case of Boustead Plantations, that should equal to around RM700 million but the company’s borrowings would stand at RM1.4 billion after the Sabah land purchase.

The firm announced in August last year that it was buying 4,915ha of oil palm plantation land in Sabah for RM397 million, in order to replace some of its plantation land in Peninsular Malaysia which

were sold off in recent years. Boustead Plantations recorded a net loss of RM51.78 million for its financial year ended Dec 31, 2018 (FY18), versus a net profit of RM620.17 million made in FY17, attributed to lower crude palm oil (CPO) prices, higher production costs and larger interest expenses from asset acquisition.

However, the group sees more upsides going into 2019 and 2020 arising from the African swine fever outbreak in China, which has resulted in soybean prices plunging. It also projects an increase in CPO demand from India.

“Because the reduction in soybean planting due to lower prices, we will have a shortage of vegetable oil in 2020, so demand will outstrip supply, and there will be demand for palm oil as a replacement for soybean.

“Also, India’s demand for CPO will increase because India reduced the import taxes on CPO to 40% from 44% in January this year,” Chow said.

In January this year, India cut import duties on crude and refined palm oil from Asean countries following a request from suppliers. The country mainly imports palm oil from Indonesia and Malaysia.

Boustead Plantations has projected CPO prices to range between RM2,200 and RM2,300 per tonne this year. RAM Rating Services Bhd’s 2019 CPO price forecast stands at between RM2,200 and RM2,400 per tonne, while Hong Leong Investment Bank Bhd is anticipating prices to average at RM2,300 per tonne this year and RM2,400 per tonne in 2020.

Boustead Plantations also expects fresh fruit bunches production to increase by between 5% and 10% this year to about one million tonnes from around 900,000 tonnes in 2018.

It also intends to grow its plantation landbank to about 100,000ha from 93,000ha presently.

“As an upstream player, we are a price taker. If you are not big enough, you are not going to be competitive,” Chow said.