One of Asia's largest flour millers, Interflour, will receive a $42.9 million interest-free loan from Western Australian grain grower cooperative the CBH Group after the miller failed to meet performance expectations.
Interflour is a joint venture between the CBH Group and Indonesia's Salim Group.
It was established in 2005 and has 10 flour mills operating in Indonesia, Malaysia, Vietnam, the Philippines, and Turkey.
In total, Interflour will receive nearly $89 million from the joint venture partners CBH and the Salim Group's trading entity Origold to help balance its books.
CBH chief financial officer Doug Warden said grower shareholders were notified of the board's decision to approve the funds on Tuesday.
"Ultimately the board agreed to put the money in because it's clearly what was required to strengthen the balance sheet of Interflour," he said.
Performance below expectations
Mr Warden said Interflour had struggled to recover from a large capital expenditure program of building flour mills.
"The decision to build the plants [was made] several years ago, but the debit remains on the balance sheets because the performance of those plants hasn't been what was expected at the time that those investments were made," he said.
"The balance sheet needs more equity; that's what it boils down to."
No guarantee to buy Aussie wheat
Mr Warden said the loan would not guarantee that the mills would buy Australian wheat, which has struggled to compete in the Indonesian market.
"There's no agreement as part of putting [up] this money that they will buy more grain from WA," he said.
"It would be unrealistic for us to impose that sort of restriction on them in such a competitive market.
"They have to buy their grain from the most competitive sources [and] that declining trend of flour millers in South East Asia buying less grain from WA and Australia in general continues."
Investments will be reviewed
Mr Warden said Interflour was showing signs of improving its performance off a 'low base.'
"The underlying operating performance has improved, at an underlying level it's well up on last year, but as to when it will turn a profit, I can't speculate on that.
"The key to the turn around is to try and improve the utilisation of these flour mills to increase the profitability."
Mr Warden said the CBH board would continue to review all of its investments, and explore all options for its investments, including Interflour.
