04 October 2001 (Business Times) - KUMPULAN Guthrie Bhd may have toreconsider the structure of a planned international Islamic bond issue toaccommodate global investors’ softening appetite for risk, bond runnersand industry observers say.Guthrie is likely to delay the US-dollar denominated bond issue to nextyear due to weaker sentiment, traders and dealers said.The arrangers, ABN Amro, may also change the size and tenor of the issue,they said. The discount considered earlier for the Islamic bonds, too, mayhave to be adjusted.Proceeds from the bonds will be used to refinance the group’s borrowings,taken to buy 203,000ha of oil palm plantations in Indonesia with estatescovering Kalimantan, Sumatra and Sulawesi.Traders said it will not be easy for Guthrie to go ahead with plans forthe debt papers. Many companies in Asia — such as Nomura ResearchInstitute Ltd of Japan, mining giant BHP Billiton and Philippine LongDistance Telephone Co — have cancelled share and bond sales after aterrorist attack destroyed the World Trade Centre in New York and part ofthe Pentagon on September 11 and sent world financial markets spirallingdown.“I believe the arrangers have been planning the bond issue over the lastfew months, so the timing could not have been worse as nobody expected theterrorist attacks,” a treasury dealer said.Last year, Guthrie bought 25 oil palm operating companies in Holdiko PalmPlantations — now known as Minamas Plantation — through the IndonesianBank Restructuring Agency.Market talk is that Guthrie is looking at an initial issue of US$150million (US$1 = RM3.80) to gauge investors’ response, with other trancheslooking at over US$250 million.As it is an Islamic debt paper, traders and dealers expect the bonds to betargeted at Islamic investors in West Asia.Financial advisers for the debt paper, ABN Amro, told Business Times thatthe bank will have to look at the changing market conditions in the wakeof the September 11 attacks in the US.Officials said the proposed bond issue has not been confirmed. Bank Islamis the structural adviser for the debt papers.Guthrie is believed to have asked local rating agency Malaysia Rating CorpBhd to rate the credit quality of the conglomerate. A rating by aninternational rating agency is expected to follow for the US-dollardenominated bond issue.According to analysts and traders, Guthrie’s preference for internationalbonds could be a move to take advantage of low US interest rates, as wellas to tap the Islamic West Asia financial market.The US Federal Reserve cut its short-term interest rate again on Tuesday,bringing it to 2.5 per cent, the lowest since 1962.This has indirectly helped to enhance Malaysian sovereign bond yields overUS Treasury trade bills.However, a bank treasury head said the cost of the bonds will depend ontheir credit rating. He said a local ringgit bond issue might be cheaperas Guthrie’s would benefit from a better local rating due its familiarstanding.Meanwhile, analysts covering the plantation concern said the recentsluggishness in palm oil exports is likely to dampen future earnings whileinterest expenses on borrowings for the purchase of Indonesian companieswill depress profits for the year ending December 31 2001.They said Guthrie could post disappointing results again in the thirdquarter due to weak crude palm oil (CPO) prices and high operating costs.Guthrie posted a pre-tax loss of RM24.64 million for the second quarterended June 30 2001 compared to a pre-tax profit of RM17.45 million in thecorresponding period last year.Analysts believe that the losses could be due to higher replantingexpenditure.According to them, the contribution from the acquired Indonesianplantation is expected to materialise only in the next financial year atan operating profit of more than RM120 million based on an average CPOprice of RM1,150 a tonne.The contribution takes into account production of between 20 and 30 percent of the capacity of mature trees in the Indonesian plantations, and isexpected to increase steadily from 2003 onwards.