Carotech Bhd has defaulted on some RM213.6 million worth of debt obligations involving several lenders as the company had not been able to generate adequate cash due to a tough operating landscape.
In a statement to Bursa Malaysia yesterday, Carotech, which extracts and sells palm oil phytonutrients and oleochemical products, said 72% of the RM213.6 million as at end of last month constituted US dollar-denominated term loans amounting to US$47.78 million (RM154.48 million).
The balance is made up of ringgit-based term and trade facilities worth RM59.12 million. “The directors wish to categorically state that the underlying business model and group’s products remained sound and well received in the markets.
“However, the default arose mainly due to over expansion of capacity, significant rise in working capital and inability to clear stocks due to curtailed demand arising from the poor economic conditions in Europe and US,” Carotech said.
Carotech said it had invested more than RM300 million over the past three-and-half-years (between 2006 and 2008) to increase its annual output capacity of phytonutrient and oleochemical products from 18,000 tonnes to 120,000 tonnes to cater to growing demand.
However, it said the significant increase in commodity prices in late 2008, particularly, crude palm oil which forms Carotech’s primary feedstock, and the subsequent global economic turmoil had affected the company’s ability to generate cash flow. The company, which had defaulted on its loans since July 2009, said it had negotiated with several financial institutions to reschedule and restructure the repayment terms, and certain lenders had agreed to do so.
Nevertheless, Carotech said it intended to embark on a composite long-term solution for its debt obligations and, as such, had sought the assistance of the Corporate Debt Restructuring Committee (CDRC) to mediate on the restructuring exercise.
The CDRC approved Carotech’s application for mediation yesterday. Carotech has been given six months beginning yesterday to complete the exercise.
Carotech said the plan would enable a composite solution to be reached with the participating institutions to improve its cash position and smoothen its operations. As such, the company is deemed solvent.
Its creditors include Malayan Banking Bhd, Malaysian Industrial Development Finance Bhd, OCBC Bank Bhd, RHB Bank Bhd, Hong Leong Bank Bhd, and Kuwait Finance House (M) Bhd. The lenders have not initiated legal actions against Carotech.
“The financial institutions may declare the loan to be immediately due and payable. However, the company and CDRC will be meeting the respective lenders soon to discuss the debt restructuring exercise.
“The company will be able to continue with its existing business with very limited financing resources,” Carotech said, adding that to maintain itself as a going concern, it was actively improving the sales on its phytonutrients products and reducing the current inventory level.
The latest announcement on Carotech’s failure to meet its debt obligations may have come as a surprise to the market. This is because its latest financials in the third quarter (3Q) ended March this year had shown significant improvement in annual and quarterly terms.
During the quarter, net profit rose to RM9.34 milllion from RM1.76 million a year earlier while revenue came to RM75.93 million compared with RM53.1 million previously. Its net profit growth was substantially helped by foreign exchange gains.
This article appeared in The Edge Financial Daily, July 2, 2010.
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