IOI Corporation Berhad. Foreign Exchange Losses Not Much

The market rebounded. In the morning session the KL Composite Index gains +18.41 points to close at 847.82 points. This was also follow by a strong rebound in the Asia financial market today. How would it fare in the next few days ? Actually I don't have any answer for that question.

If from my point of view the market should be consolidate after this run up. At the moment the market went up so strongly because of IOI Corporation Berhad. IOI Corporation Berhad lead the market and rebounded strongly during the morning session. The counter gain RM +0.38 to close at RM 2.63 per share in the morning session.

Before IOI Corporation Berhad share prices went down or tumbled, the rumours circulating around stated that IOI foreign exchange losses might be as high as RM 2 billion. Now it appear that IOI Corporation has issued an announcement regarding about the foreign exchange losses and it appear that the losses is not as high as the rumours stated.

Here are the announcement:

Announcement on alleged foreign exchange trading losses suffered by IOI Corporation Berhad. Due to the continuing concerns expressed by various quarters and the conflicting media reports on the alleged foreign exchange trading losses suffered by the Group despite the Company’s earlier announcement dated 24 October 2008, the Company wishes to furnish the following information to further clarify the matter.

As at 30 September 2008, the Group has the following outstanding forward foreign currency contracts: please refer the chart on the right.

The realised foreign exchange loss for the 1st quarter of FY2009 is approximately RM100 million. (Full year FY 2008 – realised foreign exchange gain was RM 7 million).

As stated in our earlier announcement, the nature of the Group’s downstream business is such that a lot of our sales to established customers are for the forward months, sometimes up to two years forward. These sales are secured against forward raw material purchases which are often denominated in different currencies, mainly Malaysian Ringgit and US Dollars.

Accordingly, the Group has been utilising various methods of forward currency coverage and hedging to match the respective income streams and raw material purchase costs to minimise its exposure to the foreign currency risk and hence, protecting its operating margin. Finally, the Company wishes to further assure its shareholders that the financial position of the Group remains strong and it has no problem in meeting the cash flow requirements of its business operations.