KUALA LUMPUR: TH Plantations Bhd, which currently has a gearing of 0.71 times, may issue warrants and bonds or sell some estates to trim its debt to a more palatable level of 0.5 times.
“If palm oil prices were to fall below RM2,300 per tonne, our gearing would be affected,” TH Plantations chief executive officer and executive director Datuk Zainal Azwar Zainal Aminuddin said after a shareholders’ meeting, here, yesterday.
Yesterday, the third-month benchmark crude palm oil futures fell RM36 to close at RM2,564 per tonne.
Malaysia’s palm oil production will decline from what has been forecast due to the continuing effects of El Nino.
“We’re considering various ways of de-gearing. We want to pare down debt. A gearing of 0.5 times would be palatable. We want a buffer. If palm oil prices were to plunge as low as RM1,800 per tonne, we could still be in the profitable zone,” Zainal said.
He said some of the possible measures included issuing warrants or perpetual bonds and disposing of less-productive assets.
Zainal, however, stressed that TH Plantations was still exploring various options and had not made any final decision.
Last year’s low palm oil pricing of around RM2,300 per tonne had made it very tough for planters, including TH Plantations.
Due to cash-flow constraints, Zainal said the group was not able to dish out dividends for the year.
“Last year, the industry had to contend with subdued production. While palm oil prices have recovered in the last few months, they are still lacklustre as labour and fuel costs have gone up. We were not able to declare dividends. We have been on an austerity drive and are intensifying cost-cutting measures this year,” he added.
Asked if the cost-cutting would include layoffs, Zainal said: “Historically, even when palm oil prices plunge, we had never embarked on any layoffs. We’re actually facing a worker shortage. We need more harvesters.”
TH Plantations, which is 72.82 per cent owned by Lembaga Tabung Haji, has 105,000ha of agricultural land.
A decade ago, when it debuted on Bursa Malaysia, its land bank was only 15,000ha.
“In 10 years, we have grown seven times on a fast-paced trajectory,” said Zainal.
He added that the group would focus on consolidating its plantations and planting up the remaining greenfield areas with higher yielding strains.