A new player is preparing to enter Papua New Guinea’s palm oil industry, after Malaysian conglomerate Sime Darby was selected as the preferred bidder for Kulim Malaysia’s shares in PNG’s largest agribusiness, New Britain Palm Oil (NBPOL). What do analysts think of the move?

NBPOL’s oil palm plantation in . Credit: NBPOL

Kulim announced two months ago it was seeking buyers for its 48.9% stake in NBPOL. The move follows Kulim’s unsuccessful bid to increase its stake in NBPOL last year. (In August 2013, the PNG Securities Commission ruled it was ‘not in the national interest’ for it to increase its stake in NBPOL to 68.9%.)

Last Friday, Sime Darby emerged as the preferred candidate after two months of intense bidding against two other Malaysian companies, Felda Global Ventures Holdings and Wilmar International. Sime Darby is one of the largest companies listed on Bursa Malaysia and has a market capitalisation of US$18 billion.

Sime Darby and Kulim now have 60 days, until 1 October, to conclude the deal, worth an estimated US$642 million (K1.5 billion).

NBPOL has a total land bank of 134,600 hectares in the UK and the Pacific, with about 80,000ha of oil palm plantations in PNG and Solomon Islands. PNG beef and sugar producer Ramu Agri Industries is also a subsidiary.

Government scrutiny likely

BSP’s Gheno Minia

NBPOL’s interim financial results for the first half of 2014, released last week, show pre-tax profits rising to US$78.2 million, compared to US$14.1 million for the same period last year, on the back of record oil production.

Minia said he also expects the PNG Securities Commission and the government to cast an eye over the sale, following last year’s ruling.

PNG presence

Sime Darby is not new to PNG and the Solomon Islands, where its Hastings Deering PNG subsidiary supplies heavy equipment to resources and construction projects.

It also has 858,879 hectares of land in nearby Malaysia, of which 525,325 hectares has been planted with oil palm and 7811 hectares with rubber.

Analysts approve sale

The expected sale has been generally well received by Kuala Lumpur-based research analysts.

Malaysian analysts Public Investment Bank Research describes Sime Darby’s entry into PNG palm oil market as ‘a good opportunity’:

‘It will pave the way for Sime’s maiden foray into PNG without the need for hefty capex and time in building up its presence.’

Another analyst, CIMB Research notes the purchase will also marginally lower the age profile of Sime Darby’s overall palm oil estates, increase its planted area by 15%, and grow its customer base in Britain, where NBPOL has a processing plant.

Management

But Affin Investment Bank analysts warn Sime Darby will only boost earnings from NBPOL ‘provided Sime have full management and operational control over NBPOL.

‘It has been reported that Kulim decided to sell its stake in NBPOL as it has not been able to exert full management control and has not been able to secure approval to raise its stake in NBPOL.’