Malaysia's Kumpulan Guthrie wins Salim plantation firms

JAKARTA (JP): Kumpulan Guthrie Bhd. of Malaysia has won the bid to acquire 25 palm oil plantation companies formerly owned by the giant Salim Group.

The Indonesian Bank Restructuring Agency (IBRA) said in a press statement late on Monday that Guthrie paid US$350 million for the plantation companies.

"Kumpulan Guthrie submitted the highest bid," said IBRA asset management investment director Dasa Sutantio.

The plantation firms are part of the various assets transferred by the Salim Group to IBRA to repay debt to the government.

The proceeds will contribute to IBRA's target to raise around Rp 18.9 trillion to help finance the current state budget.

Salim Group's publicly listed Indofood also joined the bidding for the plantation companies but it later dropped its bid after IBRA revised the timetable for the bidders to submit their final bids to Nov. 23.

With the new timetable, it was impossible for Indofood to submit the final bid on time because as a listed company it should fulfill all the prevailing capital market regulations related to the planned acquisition, Indofood said last week.

Observers believed that the timetable was revised in a bid to block Indofood from buying the firms formerly owned by its parent company.

The palm plantation companies cover a total area of more than 260,000 hectares, spanning the various provinces of Sumatra, Kalimantan and Sulawesi.

Kumpulan Guthrie's bid this week for the Salim palm oil plantations is the latest move by Malaysian producers to deal with falling prices, analysts said Monday.

With crude palm oil prices near eight-year lows due to a massive oversupply, Guthrie needs to increase Indonesian holdings to benefit from the lower labor costs of its neighbor.

Guthrie and Sime Darby Bhd. - both of which are controlled by Malaysia's government investment arm Permodalan Nasional Bhd. - have bought Indonesian plantations in recent years amid rising costs of labor and land shortages at home.

"I think it's a good move for Guthrie to buy more in Indonesia as they can cut a lot of costs," Kuala Lumpur-based BBMB Securities analyst, Azian Abu Bakar told Dow Jones.

But analysts warned against further expansion by Malaysian producers into other markets, including China, while CPO prices are likely to remain low.

CPO prices are around at 800 Malaysian ringgit (US$210) a metric ton in the Malaysian market, compared with an average 1,500 ringgit/ton last year.

While oversupply remains, companies like Guthrie need to diversify revenues out of palm oil into other businesses such as property development, analysts say.

Some 80 percent of Guthrie's 100,000 hectares in Malaysia are currently used for palm-oil plantations, although the group is aiming to expand its property business.

Guthrie has said it expects lower CPO prices, due to oversupply and more competition from other crops such as soy, to hurt its bottom line profits in the second half of this year.

For the six months ended June 30, Guthrie posted a net profit of 15.9 million ringgit, down from 78.4 million ringgit in the same period of the previous year.

Moving into Indonesia will mean the company will incur a greater proportion of its costs in rupiah, which has lost almost 30 percent of its value this year against the dollar, while making revenue in the U.S. currency.

The acquisition will also leave Guthrie well positioned to take advantage of an upturn in CPO prices next year if demand picks up enough to run down current stockpiles, analysts say.

Palm oil-producing trees in Indonesia are younger, and produce greater output, than those in the old British colonial plantations of Malaysia.

Still, Guthrie will face a number of challenges in Indonesia, including the country's less experienced workforce, often inadequate infrastructure in plantation areas, and rampant smuggling.

"Whether Guthrie can operate efficiently in Indonesia is another question," said Noor Azwa, an analyst at KAF Seagroatt. (rei)