22/2/07 (International Herald Tribune)  -  KUALA LUMPUR: IOI, the world's largest oil palm grower, plans takeovers to increase the area under the crop by almost a third by 2010, the company's executive director, Lee Yeow Chor, said.

The Malaysian company's 2.2 billion ringgit, or $629 million, of cash is a "war chest" for acquisitions, said Lee, 40, without naming potential targets.

IOI, based in Putrajaya, would join Synergy Drive and other growers snapping up assets to take advantage of prices that have surged, driven by the commodity's rising use in foods and soaps, and as an alternative fuel. Drought in Southeast Asia may also curb supply, further spurring prices, Lee said.

"Supply constraints are bound to happen unless they beef up their plantations acreage," said Kaladher Govindan, research head at TA Securities, which rates the stock as a "buy."

Palm-oil futures on the Malaysia Derivatives Exchange, the region's benchmark, have gained 31 percent over the past year. The contract, which ended at 1,925 ringgit a ton Wednesday, may climb to 2,200 ringgit in 2007, Lee said.

Synergy Drive, a recently formed Malaysian entity backed by the government, agreed in January to buy oil palm growers including Sime Darby, and will become the world's biggest producer, displacing IOI. Astra Agro Lestari, Indonesia's largest grower, said Jan. 26 it would add 100,000 hectares.

"We want to be a bigger player, starting with plantations," Lee said in an interview on Feb. 16. "We have a few targets in mind. We prefer to acquire established oil palm plantations instead of vacant plantation land."

IOI wants to increase acreage by up to 50,000 hectares, or 31 percent, and expand into neighboring Indonesia for the first time, said Lee. Malaysia and Indonesia together account for about 85 percent of global palm-oil output.

The company's so-called gearing, the ratio of its debt to equity, may be raised to 30 percent from 14 percent if borrowings were needed to help fund takeovers, he said.

Shares in IOI, which currently has 160,000 hectares of oil palm plantations, have gained 47 percent over the past 12 months compared with the 38 percent advance in the Kuala Lumpur Composite Index.

Lee said IOI is not concerned about Synergy Drive, which also agreed to acquire Kumpulan Guthrie and Golden Hope Plantations. "There is no price premium for being big or small," Lee said. "It's a commoditized market." The Synergy Drive transaction is expected to be completed by the fourth quarter.

Higher palm-oil prices helped IOI's fiscal second-quarter profit to increase 67 percent to 382.6 million ringgit, IOI said Feb. 13. The company, which is 40 percent held by the Lee family, expects similar increases for 2007, Lee said.

"The present palm-oil price has not factored in the possible El Niño phenomenon," Lee said, referring to the global weather pattern that can parch parts of Asia, crimping agricultural output. "This will definitely be a boost to palm-oil prices," he said, adding that a drought may come "soon."

El Niño, which some forecasters say is already under way, can strike every four to seven years. The events, whose name means "little boy" in Spanish, are caused by the warming of equatorial waters in the Pacific Ocean. Still, meteorologists in Australia said Wednesday that the El Niño was ending.

"If anything's going to happen, it should be this year," said Rachman Koeswanto, an analyst at Deutsche Bank in Jakarta. "El Niño is one thing, but we're also waiting for other catalysts, such as capacity for biodiesel in Southeast Asia, to take off."