This article first appeared in The Edge Malaysia Weekly on October 31, 2022 - November 6, 2022
MSM Malaysia Holdings Bhd is understood to be in talks to sell a strategic stake in its wholly-owned unit MSM Sugar Refinery (Johor) Sdn Bhd.
In an email response to a query from The Edge about whether there is any truth to this intention, MSM CEO Syed Feizal Syed Momammad says, “We are currently evaluating several feasible options to form a strategic partnership, with the criteria of export market expansion with guaranteed offtake, world-class operational experience in sugar processing, global commercial market experience in sugar commodities and capital raising.”
In response to other questions, Syed Feizal says MSM is unlikely to hive off its entire shareholding in MSM Sugar Refinery (Johor), but would opt for a partnership — or the disposal of a partial stake — while MSM retains a significant shareholding as well.
“Any potential partnership proposal will be considered for a partial stake in MSM Sugar Refinery (Johor) that meets the above stated added-value criteria … MSM Johor has significant opportunities to move towards being a world-class integrated sugar refining centre with value-added products and downstream,” Syed Feizal adds.
On whether there was any ongoing active discussion for the stake sale, Syed Feizal says, “MSM is open to considering any proposal that meets the above added-value criteria with a long-term view of turning around MSM Sugar Refinery (Johor) in unlocking its full operational and business potential.
“We are focused on MSM Sugar Refinery (Johor)’s turnaround and improvement plans with a target to achieve more than 50% production in 2023, with an enlarged export market in Asia-Pacific. In addition, the plant is equipped with value-added production lines such as liquid sugar, fine syrup and premix to cater for the domestic and export markets, which will contribute positively to the group’s profitability,” he says.
While details are scarce, it is understood that a Sabah government entity is eyeing a stake in MSM Sugar Refinery (Johor), and talks are understood to be ongoing. There are several vehicles that the state entity may use, including Qhazanah Sabah Bhd or Yayasan Sabah.
MSM Sugar Refinery (Johor) is running at 20% to 30% of its capacity and can break even only when its utilisation rate exceeds 50%. In an interview with The Edge in September last year, Syed Feizal had said he hoped for MSM to turn profitable in 2022, with the Johor refinery’s utilisation rate crossing the 50% band.
“Anything above 50% will put Johor [operations] in the black. Next year will be a turnaround year for Johor,” Syed Feizal is reported to have said in September last year. The Johor sugar refinery’s utilisation factor stood at 30% last September, which could mean that the utilisation has declined.
MSM had sunk RM1.25 billion into the refinery in 2015, which increased the company’s refining capacity by a million tonnes to 2.25 million tonnes, making MSM the largest standalone sugar refiner in Asia, with a total capacity of 2.25 million tonnes a year. The new plant was commissioned in 2019.
It is understood that, in July last year, Singapore-listed Wilmar International Ltd wanted to acquire a 15% stake in MSM Sugar Refinery (Johor), with an option to strengthen its shareholding to 49%, but the talks are understood to have fallen through.
Other than the refining facility in Johor, MSM also has MSM Prai Bhd, which operates a refinery in Prai, Penang, and has an annual production capacity of 960,000 tonnes of refined sugar and accounts for more than 80% of MSM’s total production capacity.
For its six months ended June this year, MSM suffered a net loss of RM61.75 million from RM1.22 billion in revenue. For the corresponding period a year ago, MSM chalked up a net profit of RM44.65 million from RM1.07 billion in revenue.
As at end-June this year, MSM had cash and bank balances of RM45.55 million, down from RM113.66 million at end-2021. Meanwhile, short- and long-term debt stood at RM473.06 million and RM334.52 million respectively.
As to its prospects for the year, MSM says, “The group recognises the current challenging environment amid high input costs of mainly raw sugar, freight, natural gas and the weakening of the ringgit. Other input costs such as packaging materials, wages and inland logistics have also increased significantly. The domestic and export markets are seeing stronger demand, which provides growth opportunities and recovery of product consumption, including that of sugar, across consumer and industrial segments.
“The group remains focused on meeting these demands by improving our operations to attain lower refining cost with higher efficiency and simultaneously continues to engage the government for all necessary economic support.”
MSM is 51%-controlled by FGV Holdings Bhd, which is in turn 81%-controlled by the Federal Land Development Authority (FELDA).
In 2019, FGV was in talks to hive off a stake in MSM and the interested parties included JAG Capital Holdings Sdn Bhd, the vehicle of former finance minister 2, Datuk Johari Abdul Ghani; Wilmar, which is part of the Kuok group; and companies from Indonesia and China. The sale did not materialise.
So far this year, shares in MSM have fallen 33% to 83 sen last Friday, translating into a market capitalisation of RM583.5 million.
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