FGV Audited Financial Statements 2019

186 FGV HOLDINGS BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 44 BORROWINGS (CONTINUED) MSMH Islamic term loans During the financial year ended 31 December 2017, MSMH was not in compliance with certain financial covenants for its Islamic term loans amounting to RM406.5 million. However, MSMH had received a letter of indulgence dated 3 November 2017 from the lender allowing the requirement to comply with the financial covenants to be deferred until 31 December 2018. The financial covenants were required to be met for the 12 month period ended 31 December 2019, with the first compliance date as 30 June 2019 and all times thereafter but subject to the following conditions: (a) No dividend declaration and/or payment by MSMH without prior written consent from the financier until the financial covenants are complied with; (b) Letter of undertaking from the Group to MSMH to complete the construction of the new sugar refinery in Johor by second quarter of 2018; and (c) MSMH’s ability to perform all obligations under and comply with all terms and conditions governing the facilities. As at 31 December 2018, the waiver of the financial covenants continued to be effective as MSMH met all the above conditions as stipulated in the letter of indulgence. Accordingly, the Islamic term loan of RM683.2 million had been classified based on its contractual payment dates as at 31 December 2018. On 19 March 2019, MSMH had received a letter of indulgence from the lender allowing the requirement to comply with the financial covenants to be further extended until 31 December 2019 subject to the following conditions: (a) No dividend declaration and/or payment by MSMH without prior written consent from the lender until such financial covenants are complied with; and (b) Amendments to payment terms of the loan and other relevant terms and conditions in the loan agreement must be in place and effective by the next payment due on 27 May 2019. On 2 May 2019, MSMH had successfully negotiated the amendments to the payment terms and financial covenants with the lender and had agreed revisions to the terms of agreement which include: (a) Longer tenure of loan from 8 to 12 years; (b) Increase in effective profit rate from 3 months KLIBOR plus 1.3% per annum to 1 month KLIBOR plus 2.5% per annum; and (c) Revision to the financial covenants. According to the revised terms, the financial covenants shall be computed based on the Group’s consolidated annual audited financial statement for the financial year ending 31 December 2020 onwards. Accordingly, the Islamic term loan of RM631.7 million was classified based on its contractual payment dates as at 31 December 2019. MSMH believes it will be able to meet the required financial covenants based on the projected cash flows as at 31 December 2020. The revision of the terms resulted in a loan modification charge of RM25,559,000 and loan arrangement fee of RM3,270,000 incurred by MSMH. MSMH is also assessing various possibilities to negotiate the terms of the Islamic term loan with its lenders following the announcement by the Government of Malaysia on the moratorium repayment period in view of the COVID-19 pandemic, if necessary. MSMH term loan As at 31 December 2019, MSMH’s term loan of RM71.9 million is secured against an assignment of proceeds from leasehold agriculture land disposal as disclosed in Note 60(xii) to the financial statements and the Assignment and Charge of the Designated Accounts. As indicated in Note 61(iii) to the financial statements, on 9 April 2020, MSMH had issued a letter to F&N Agrivalley Sdn. Bhd. to exercise its rights to rescind the sale and purchase agreement in respect of the disposal of its leasehold agricultural land located at Chuping, Perlis entered on 8 October 2019. Despite the cancellation of the sale and purchase agreement, MSMH continues to believe that it will be able to settle its term loan based on its contractual due dates.