FGV’S Trurich assets to be sold by Q1 next year
CEO says current valuation of the assets may be lower
KUALA LUMPUR: The bidding process for FGV Holdings Bhd’s plantation assets in Indonesia under Trurich Resources Sdn Bhd has been completed, with the disposal expected to be completed by the first quarter of 2020.
According to FGV group chief executive officer Datuk Haris Fadzilah Hassan, the negotiations between the highest bidder and Malayan Banking Bhd, which managed the bidding process, are ongoing.
The disposal of Trurich, FGV’S 50:50 joint-venture company with Lembaga Tabung Haji, has been delayed as it was supposed to be completed by end-september this year.
Trurich owns two estates, totalling 42,833ha, in Kalimantan, Indonesia.
While Trurich was valued at Rm1bil in 2018, Haris hinted that the current valuation of the assets could be lower, pointing out that the earlier valuations were “aggressive and did not consider the poor state of the plantations”.
“Since the valuation in 2018, the condition of the plantations has deteriorated. From 2018 to 2019, based on the bids, we could see that there was a gap between the valuation and what people were willing to pay for it.
“There are also some local loans that the company has taken. So, we are very prudent in terms of writing off the shareholder’s advances we made to Trurich, as we feel that even after the disposal, we would not be able to cover that,” he told reporters during a briefing on FGV’S results for the third quarter ended Sept 30.
The plantation giant narrowed its losses in the period with net losses coming in at Rm262.41mil compared with Rm849.46mil a year ago.
The financial performance was weighed down by impairments of Rm304mil, lower crude palm oil (CPO) prices realised for the period and losses in the sugar business. However, FGV expects its operational numbers to improve due to better CPO prices, moving forward.
Group revenue, meanwhile, rose 11.1% year-on-year (y-o-y) to Rm3.55bil, led by significantly improved operational performance resulting in higher yields and lower costs.
FGV said the higher revenue was achieved despite a sharp decline in the CPO price and the lower average selling price of sugar.
For the third quarter, CPO prices averaged RM1,983 per tonne, which was 11% lower than the average CPO price realised of RM2,224 a year ago.
Its loss per share was at 7.2 sen compared with 23.3 sen a year earlier.
Cumulatively, for the nine-month period ended Sept 30, FGV’S net losses narrowed to Rm317.98mil from Rm871.76mil in the previous corresponding period.
Its revenue was lower at Rm10.10bil compared with Rm10.23bil.
“The group’s results were largely affected by the impact of the lower average CPO price realised in the plantation sector for the current period and losses incurred in the sugar sector,” FGV said.
Commenting on FGV’S transformation plan, which began in the third quarter of 2018, Haris said it has led to significant improvements in operational performance.
He also added that in addition to improving palm oil operations, FGV has also repositioned itself to capitalise on its large land bank and vast resources to create alternative earnings streams.
“We have identified clear strategies to derive value within the circular economy and to enter into adjacent businesses that would enable us to sweat our assets more.
“Potentially, we are looking at additional revenues of Rm100mil a year,” he said.
Meanwhile, Haris also said that the group was in “active discussions” with several parties to offtake a portion of the excess of the one-million-tonne sugar production capacity at MSM Holdings Bhd’s refinery in Johor.
In particular, he said that discussions with partners in China were at an advanced stage to offtake 700,000 tonnes of sugar.
For context, MSM is 51%-owned by FGV. Its Johor refinery capacity currently stands at 2.25 million tonnes per annum, surpassing the country’s demand of only 1.6 million tonnes annually.
“We are talking to markets or people where there is a gap between their domestic capability and demand. We are talking to partners from China on the offtake of up to 700,000 tonnes of the excess capacity, and once this is concluded, we will keep 300,000 tonnes for our own export markets,” said Haris.