Sunday, September 7, 2014

FGV ... Its Cash Is Exhausting !!

Its latest acquisitions could exhaust the remaining rm1.6 billion it had raised from its 2012 IPO. Late Aug 2014, the agri business giant Plantations Ltd as well as a joint venture to purchase a 50% stake in a biodiesel plant that will set it back rm628 million and 71.8 million.

In addition, the London listed APL had USD129.12 million in borrowings as at Dec 2013 which FGV will have to clean up after the purchase.

Presently APL gas a debt to equity ratio of 3.7 times which will raise FGV’s group gearing to 0.4 times from 0.33 times if the acquisition is successful.

At the group level, FGV expects its gearing to return to 2013 levels by end of financial year 2015 ending Dec 31 (FY2015).

FGV is open to fundraising exercises or further borrowings to finance its expansion.

Post acquisition, its net debt could be rm547 million compared with rm559 million in net cash now (Sept 2014).

Given the large capex that the group will need to plant up the remaining landbank of APL and Indonesia, its appetite for acquisitions and current (Sept 2014) low CPO prices, observers are concerned that its gearing level will continue to rise in coming years and impact its dividends payment.

To be sure, APL only began planting in 2009. It has a total landbank of 24622ha in Miri and Bintulu, Sarawak, of which 16300ha have been planted. Development of the remaining hectares would mean a need for heavy capex in the near term.

Due to APL’s young palms and new plantings, the company is still loss making, posting a net loss of USD14.35 million for FY2013 ended Dec 31.

Industry observers are say conventionally the cost to expand milling capacity could be some rm1 million per tone. This would mean a requirement of a further rm60 million in capex.

The optimum age for any plantation is eight years from Sept 2014. Presently (Sept 2014), APL has an average age of 5.2 years. The real production growth will be seen once the palms come of age.

More than half of FGV’s palms are old or very old – over the age of 18 years. APL would improve the group’s average age profile by 0.6 years.

But in the meantime, FGV will be tasked with completing the planting up of the five estates under APL’s name if the deal goes through. It will have another 8300ha to plant under APL and targets new plantings of 3500ha in 2015. But this too will put some strain on FGV’s cash position.

The cost of plantings is roughly some rm15000 per hectare, requiring some rm52.5 million in 2015.

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