Java subsidiaries to cease timber operations after loan defaults

PETALING JAYA: Java Bhd will cease the timber operations of its subsidiaries following a default in loan repayments by its subsidiaries amounting to RM30.2 million.
In a filing with Bursa Malaysia yesterday, the company said its subsidiaries Java Industries Sdn Bhd, Java Woods Sdn Bhd, Java Timber Sdn Bhd and Java Resources Sdn Bhd intend to cease their respective timber operations due to losses sustained over the past few years.
"The timber manufacturing operations are not expected to be able to turn around in the near future as the current operations have been hampered by high manufacturing costs, primarily due to the lack of economies of scale as a result of shortage in the supply of timber logs," it said.
It said the timber industry in Sabah has been affected by the shortage of raw materials arising from the stringent enforcement on logging activities, restriction in awarding of natural forest concession rights and the implementation of the Reduce Impact Logging guidelines.
In addition, the importing of raw materials was not a viable option due to the limited volume of import as a result of high logistic cost and depreciation of the ringgit.
The company said the group has gradually scaled down the production of timber products over the past few months and has been focusing on fulfilling outstanding sales orders.
The proposed cessation will be carried out on Dec 31, 2015, after which the group will focus on restructuring its business and source for new profitable business ventures to turn around its financial position.
In a separate filing, the company said Java Industries and Java Timber have defaulted in their repayment of financing facilities to Hong Leong Bank Bhd.
The subsidiaries defaulted in the repayment of term loan facilities amounting to RM15.1 million each due to a slowdown in businesses and adverse conditions in the timber market.
Java said the two subsidiaries were unable to generate sufficient revenue to meet the repayment of the entire principal sum of the term loans on its Nov 24, 2015 due date.
Subsequent to a meeting held with the bank on Nov 30, 2015, the company submitted a proposal for the settlement of the outstanding sums via a letter dated Dec 4, 2015. The bank has yet to revert on its proposal.
"The extent of the liability of the company is limited to the corporate guarantees provided in all the facilities amounting to RM30 million," Java said.