Manufacturing of medical gloves at a Malaysian plant operated by VIP Gloves (ASX: VIP) continues around the clock after the country’s government confirmed the business falls into the essential sector under COVID-19 lockdown rules.
VIP has also confirmed its order book is fully committed until year end, with orders for nitrile disposable gloves filling approximately 100 40-foot shipping containers.
Each container holds up to 4 million gloves.
Meanwhile, the company said the operation and commissioning of two new production lines have been affected by finetuning problems during the COVID-19 period.
The lines can only recommence after supplier adjustments have been completed under warranty.
However, as the warranty work falls into the non-essential sector, it cannot be conducted until after lockdown restrictions are lifted later this month.
VIP produces nitrile rubber gloves to international quality standards for use in the medical, health and dental industries, as well as other commercial sectors.
Malaysia is the world’s largest manufacturer of disposable gloves, accounting for more than 60% of global production figures.
Many of the world’s largest glove manufacturers and suppliers are also located in Malaysia.
VIP has two wholly-owned Malaysian subsidiary companies, which manufacture nitrile disposable gloves from a plant located in Selangor.
Sale and leaseback
In February, VIP executed a $10.27 million sale and leaseback agreement over land and buildings to unrelated Malaysian company DC Glove Sdn Bhd.
The sale was designed to provide a cash injection for VIP, with funds used to expand existing operations and acquire additional raw material to bring manufacturing capacity in line with customer demand.
It also aimed to eliminate the company’s financial borrowings (including convertible note debt) and provide ongoing working capital.
The leaseback will commence one day after the completion of the sale agreement for an initial three-year term.
The term can be renewed for a further four three-year terms, with a maximum 2% increase allowed in lease payments at the end of each term.
Lease payments for the first three-year term have been set at $42,500 per month.
The sale and leaseback is not expected to result in any disruption to VIP’s Malaysian manufacturing operations.
Approval for transfer of the land is expected to be received from the local government council in June.
At late-morning, shares in VIP Gloves were trading 185% higher at $0.10.