The board of Papua New Guinea’s second largest employer, New Britain Palm Oil Limited, is likely to  recommend shareholders accept a K5.09 billion (US$ 1.74 billion) takeover bid from Malaysia’s Sime Darby.

NBPOL’s palm oil fields.Credit: NBPOL

The bid by Sime, the world’s largest listed palm oil producer by market value, is conditional on obtaining 51 per cent of shares.

A similar bid for a clear majority shareholding 14 months ago by Kulim was rejected by the Securities Commission’s Acting chair, Alex Tongayu, who said then the offer was not in the national interest because it would dilute PNG shareholders’ interests and reduce liquidity in the PNG stock market.

It was that rejection which led to Kulim putting its shares up for sale two months ago.

Papua New Guinea Prime Minister, Peter O’Neill has written to the Sime Darby, confirmed that ‘a shareholding’ by Sime Darby would ‘not be contrary’ to the country’s interests, but he did not specify a level of shareholding.

‘The agricultural sector needs capital investment, whether from overseas companies or locally-based companies.’

Shareholder approval needed

Kulim says it will accept Sime Darby’s offer, if a better offer isn’t made and if it meets shareholders’ approval. NBPOL says an independent board committee will recommend the Sime Darby bid to shareholders in the absence of a higher offer.

Malaysian-based analysts MIDF Research says in a research note the proposed deal is likely to go through, as the offer has gained strong support from the PNG government and the independent directors of NBPOL.

‘The agricultural sector needs capital investment,’ points out economist Paul Barker, the Executive Director of the Institute of National Affairs, ‘whether from overseas companies or locally-based companies.

‘Big land banks are hard to come by nowadays, especially with uncertainties in Indonesia.’

‘If it takes overseas companies to maintain and develop existing plantations and maintain jobs, so long as they are reputable companies, and not like those involved in the SABLs, and are prepared to work in partnership with local landowners and shareholders, all well and good,’ he told Business Advantage PNG.

‘I am sure Sime Darby would welcome strong local participation.’

Sime Group Chief Executive Officer Mohd Bakke Salleh.

Increased government shareholding?

Sime Group Chief Executive Officer Mohd Bakke Salleh told an analysts’ briefing in Kuala Lumpur, he believed the PNG government wanted to increase its shareholding in NBPOL from 18 per cent to around 30 percent. The national government currently holds per cent, while the West New Britain Provincial Government has 12.08% shareholding.

The cash offer will be 80 percent financed through borrowing and the rest with its own funds, Bakke said.

‘It’s not often that an opportunity such as this presents itself,’ Bakke said.

High price

Sime Darby is offering K24.18 (US$ 11.36) a share for London- and POMSoX-listed New Britain Palm Oil Ltd (NBPOL), which represents an 85 per cent premium on the last closing share price. [Kulim offered K19.07 (US$8.49) per offer share.]

The premium paid for NBPOL’s assets reflects competition for developed oil palm projects, because of problems accessing new land, Barclays said in a report.

‘Big land banks are hard to come by nowadays, especially with uncertainties in Indonesia,’ said Chye Wen Fei, an analyst at Hong Leong Investment Bank Bhd in Kuala Lumpur.

‘The price tag maybe on the high side, but it is compensated by the size of the land bank (in PNG).’

Indonesia is looking to cap foreign ownership of plantations to 30 per cent from a current 95 per cent limit.

Sime Darby will seek to delist NBPOL from the London Stock Exchange.

Bakke says the firm is in early stages of exploring a secondary NBPOL listing in Malaysia or Singapore, but NBPOL’s primary listing in Papua New Guinea will be retained.