This article first appeared in The Edge Financial Daily on August 28, 2019

PETALING JAYA: Given its “lazy balance sheet”, Sime Darby Bhd intends to borrow more to fund its acquisition trail, particularly for the auto sector in China and Australia, according to its group chief financial officer (CFO) Mustamir Mohamad.

Speaking to reporters at the results briefing for the financial year ended June 30, 2019 (FY19) yesterday, Mustamir said the group plans to increase its gearing up to 0.6 times in the next few years from the current 0.3 times, which is deemed low.

To put things into perspective, following the acquisition of Gough Group Ltd, Sime Darby would have room to raise its gearing by up to 0.27 times, which would enable the group to make acquisitions worth some RM2.34 billion. As at June 30, Sime Darby’s total borrowings stood at RM2.6 billion.

“Currently, we are considered to have very low gearing and the 50% to 60% [gearing level] is considered healthy. [This level was determined by us] after engaging with investment bankers to come out with an optimal capital structure,” said Mustamir.

Asked if there is a time frame to gear up to 0.6 times, Mustamir said it depends on the acquisitions in the next three to four years.

“We are looking to undertake more acquisitions in the motor space, and that will be in Australia and China,” said Mustamir.

Its group chief executive officer Datuk Jeffri Salim Davidson confirmed that Sime Darby had bid for Columbia Asia Group’s healthcare business. When asked if there are any other acquisitions that the company is eyeing, Jeffri said: “We have some other things that we are looking at. When it happens, we will announce it.”

Post acquisition of New Zealand’s Gough Group, Mustamir said, the company’s gearing would become 0.33 times from 0.3 times. He added that the company would not be looking at more Caterpillar dealerships after the NZ$211 million (RM600 million) acquisition of Gough Group.

Noting that the acquisition in New Zealand is expected to be completed by Sept 30, Mustamir said Gough Group is anticipated to contribute over RM1 billion to revenue annually.

For its capital expenditure (capex), Sime Darby has set aside over RM1 billion for FY20 — for its motors division, showroom upgrades and the extension of its assembly plant, among others. Part of its capex would be used for maintenance works in the industrial business and the logistics business, said Mustamir. He said Sime Darby is planning to sell some of its non-core businesses, including the insurance business, the retail business, as well as its stake in property developer Eastern & Oriental Bhd.