The board of chemical manufacturer D and L Industries Inc. (DNL) on Tuesday has approved the company’s maiden bond offering of up to P5 billion, proceeds of which will be used to fund its new plant in Batangas.
The company said it will issue between P3 billion to P5 billion in debt with maturity of 3 to 5 years. Final details of the issuance, including interest rates, will be finalized together with the company’s underwriters, it said.
“With interest rates still remaining low, we believe it’s an opportune time to tap the debt market. Our maiden bond offering will be a useful financial exercise for the company and will allow flexibility for future opportunities we can potentially take advantage of,” Alvin Lao, the company’s president and CEO said.
The proceeds from the bond issuance will primarily be used to finance the company’s new plant in Batangas which involves a total estimated capital expenditure of P8 billion and other working capital requirements.
Construction for the expanded factory of the company started in late 2018 and completion is expected by the end of the year. Remaining capex to be deployed for the project is about P4 billion.
Once completed, the new plant will be instrumental to the company’s future growth, in line with plans to develop more high value-added coconut-based products and penetrate new international markets.
The facility will mainly cater to DNL’s growing export business in the food and oleochemicals segment, the company said. It will add the capability to manufacture downstream packaging, thus allowing DNL to capture a bigger portion of the production chain.
For instance, while the company primarily sells raw materials to customers in bulk, the new plants will allow it to “pack at source” so it can charge more.
This means that DNL will have the ability to process the raw materials and package them closer to finished consumer-facing products. This will enable the company to move a step closer to its customers by providing customized solutions and simplifying their supply chain, which is of high importance given global logistical challenges and concerns.
“With earnings growing by 8 percent year-on-year in the fourth quarter of 2020, which likely signifies the inflection point in earnings growth, we believe that the worst is over and we are in a very good position to further recover as the economy continues to reopen,” Lao said.
“The resiliency that the company showed last year highlights the relevant nature of our businesses’ catering to basic industries, and our operational adeptness as even in the worst of times, even at the peak of the lockdown, we never saw our net income turn negative. We believe that the future growth prospects of the business remain strong, and we look forward to our new plant coming online by the end of the year.”
As of end-December 2020, the company remained lightly-geared with net gearing at 17 percent and interest cover at 18 times. Average cost of debts, which were all short-term, stood at 3.53 percent.
Post bond offering, the company estimates its net gearing to reach 42 percent and interest cover to settle at 11 times.