Top Glove issues sukuk to expand production lines, repay borrowings


TOP Glove Corp Bhd is raising fresh cash in the form of a sukuk to fund its capacity expansion that will keep the rubber glove maker as the largest in the world.

Its wholly-owned subsidiary TG Excellence Bhd has lodged a perpetual sukuk programme to raise as much as RM3 billion, Top Glove stated in a release yesterday, just as there is a health scare across Asia.

Proceeds from the proposed initial issuance of the perpetual sukuk will be largely used to refinance Top Glove’s existing financial and debt obligations and to part fund its capital expenditure requirement.

The group’s borrowings currently comprise about RM1.3 billion in long-term facilities with the bulk of the remainder consisting of short-term funding.

Remaining proceeds will be utilised for expansion of its existing production line to grow it to overall capacity to 91.4 billion pieces by end-2021, funded by internally generated funds and borrowings.

The Malaysian Rating Corp Bhd (MARC) has assigned a rating of AA-IS to TG Excellence’s proposed sukuk with a stable outlook. The assigned corporate credit rating reflects Top Glove’s demonstrated strong revenue growth and healthy cashflow generation with stable working capital management, the rating agency noted.

Top Glove remains the world’s largest glove manufacturer, commanding about 26% of global capacity as at its financial year ended-August 2019 (FY19).

The group now has 687 production lines in 33 glove factories with a combined capacity of 70.5 billion pieces annually, which grew from 51.9 billion pieces in FY17, reflecting the group’s ability to maintain its lead position and capture growing global demand.

It commands a globally diversified customer base with the largest client accounting for about 4% revenue in FY19, mitigating client concentration risk.

Top Glove has gradually shifted its focus to meet the increased demand for higher-margin nitrile gloves, which accounted for 46% of the group’s total glove sales in FY19 from 35% in FY17.

The group’s product diversification efforts also involved venturing into the specialised surgical glove segment through the acquisition of Aspion Sdn Bhd for RM1.37 billion in 2018.

While revenue from the surgical glove segment has increased to 10% in FY19 from 4% in FY17, the largely debt-funded acquisition of Aspion has strained the group’s leverage position with debt-to-equity ratio standing at 0.95 time as at end-FY19 from the pre-acquisition level of 0.18 time.

MARC expects its debt-funded acquisitions of Aspion’s scale will not be a recurring feature of the group going forward.

The group’s debt-to-equity ratio will improve upon the issuance of the perpetual sukuk.

Top Glove’s group borrowings currently comprise about RM1.3 billion in long-term facilities with the bulk of the remainder consisting of short-term funding.

In FY19, revenue grew by 13.8% year-on-year (YoY) to RM4.8 billion, while operating profit fell by 8.5% YoY to RM495.3 million, partly due to an increase in latex price and time-lag in product repricing.

Operating profit margin declined due to prevailing competitive pressures, registering 10.3% fall in FY19 (FY18: 12.8%) and the ongoing shift to higher-margin products is expected to support overall margins.

Cashflow from operations stood at RM605.8 million in FY19, providing strong interest cover of 7.61 times, the MARC review stated.

The ‘Stable’ rating outlook on the sukuk reflects Top Glove’s ability to continue generating strong and stable cashflows from its operations to support its growth plans and to meet its financial obligations, MARC said.