9/2/06 KUALA LUMPUR (Dow Jones)--Malaysia's Golden Hope Plantations Bhd. (1953.KU) plans to make 50%-owned Cognis Oleochemicals (Malaysia) Sdn. Bhd. a unit and may float the company within three years, a senior Golden Hope executive said recently.

Making Cognis Oleochemicals a unit will allow Golden Hope - Malaysia's second-biggest palm oil producer in market capitalization terms - to equity account, or consolidate, Cognis Oleochemicals' earnings into its own. Golden Hope is controlled by government-owned fund manager Permodalan Nasional Bhd.

"If we buy 1% (more of Cognis Oleochemicals), Golden Hope's turnover will go from about MYR3.5 billion ($938.3 million) to MYR8 billion," Chief Executive Sabri Ahmad told Dow Jones Newswires in an interview.

"That (stake increase) will be within three years. We are also hoping that maybe, Cognis Oleochemicals will go for an IPO," Sabri said.

He did not provide a specific timeframe for a public offering, but indicated that if the stake increase succeeds, a flotation would be within three years from now.

Sabri declined to detail how much a Cognis Oleochemicals initial public offer would raise, but said annual net profit is around MYR80 million.

If Cognis Oleochemical is priced around the broad market's 13 to 14 times 2006 projected earnings, the offer could raise at least MYR260 million if 25% of its shares are floated, analysts said. Malaysia's regulators require the public to own at least 25% of listed companies.

Closely-held Cognis Deutschland GmBH owns the remaining 50% of Cognis Oleochemicals, and has indicated it is open to the idea of cutting its stake, Sabri said, without elaborating.

In November, Cognis Oleochemicals bought the global oleochemicals and plastics business of Cognis Deutschland. Prior to the purchase, Cognis Oleochemicals, although half-owned by Cognis Deutschland, concentrated its activities in Malaysia, producing fatty acids and other oleochemicals.

The deal required Golden Hope to inject MYR180.5 million into Cognis Oleochemicals, bringing to MYR217.9 million its investment in the company.

Palm Biodiesel Production To Begin; Diversification Plans

Golden Hope will also begin commercial production of palm biodiesel this year, Sabri said. Its biodiesel plant with a 30,000 metric ton annual capacity will begin operating in July.

A 50-50 joint-venture plant with the government's Malaysian Palm Oil Board will start in July 2007, and a third plant will begin production by late 2007 with annual capacity of 150,000 metric tons.

The company is also building a 150,000 metric ton capacity biodiesel plant in Holland.

Ironically, rising demand for biodiesel could render such plants not viable, Sabri said.

"My worry is that if there is so much interest, it may cause CPO (crude palm oil) prices to jump too much," making biodiesel not viable, he said. He estimates that biodiesel can only be profitable as long as crude oil prices stay above $50 a barrel, and crude palm oil is around MYR1,400 a metric ton.

For this year, Sabri projects crude palm oil prices staying between MYR1,400 to MYR1,600 a metric ton.

"But in 2007, once biodiesel plants come on-stream, not just in Malaysia but throughout the world, then it will be a different ball game," Sabri said.

Still, Golden Hope hopes to mitigate any rise in crude palm oil prices by increasing acreage and improving productivity, Sabri added.

To this end, Golden Hope plans to expand its Indonesia plantations to 50,000 hectares, from 20,000 currently, he said.

In addition, "we're also looking at strategic alliances with reputable plantation companies in Indonesia," Sabri said. "Hopefully, we'll have some (development in this area) by end-June," he added.

While Malaysia is the world's biggest palm oil producer, Indonesia is fast expanding output and offers cheaper land and manpower for the industry.

On the outlook for Golden Hope's net profit in the year ending June 30, Sabri said production "will be slightly down because of tree stress." He declined to elaborate. Tree stress causes oil palms to produce less fruit after prolonged periods of high output.

Seven analysts surveyed by Thomson Financial project an average full-year net profit of MYR427.8 million, down 22% on-year due to a MYR271.5 million extraordinary gain in the previous year.