27/3/06 KUALA LUMPUR (The Star)  - Plans to create a mega plantation group with strong global presence through the merger of top government-linked (GLC) plantation companies will not take place at least for the next two to three years.

Despite market talk about a potential GLC plantation merger in the offing, an industry source told StarBiz that the Government had given the mandate to its plantation companies to “individually” carry out their oil palm related core businesses over the next 18 to 24 months.

“(For now) I believe there are no clear directives from the Government asking GLC plantation players to start preparing for any mergers or acquisitions,” he said. 

He said the newly released three-year Key Performance Indicators (KPIs) of the top 15 GLCs, including four top plantation companies namely Sime Darby Bhd, Golden Hope Plantations Bhd (GHope), Kumpulan Guthrie Bhd (Guthrie) and Boustead Holdings Bhd, was a clear indication that companies were committed towards achieving their return on equity (ROE) targets.

The source said: “Sime Darby seems to be the favourite candidate to spearhead the proposed merged GLC plantation entity due to its global reputation and strength in finances, brand presence and both upstream and downstream oil palm plantation businesses.”

He said one must also consider the performance of GHope and Guthrie, which were busy making strong headway, especially on the international front. 

“It will not be easy or fair to consider merging these plantation GLCs under one roof now as companies like Guthrie and GHope are also out to prove their strength and capabilities in the global market,” the industry source added.

He brushed off recent talk about Guthrie being taken private by another GLC company, adding that Guthrie could not afford to go through such restructuring while preparing to list its Minamas plantation on the Jakarta Stock Exchange, and settling important land issues in Indonesia.

As for GHope, the industry source said: “This company has proven its mettle, especially the successful acquisition of 50% of global oils and fats business in German-based Cognis Deutschland GmbH & Co KG, and serious venture into biodiesel projects last year.”

He said GHope was poised to be the catalyst for the future success of biodiesel ventures in Malaysia. To-date, GHope is believed to be the most active local player with three confirmed biodiesel plants.

The industry source said the merger of GLC plantation companies was inevitable and would still “take place one day”.

Avenue Securities head of research Noor Azwa Mohd Noor said it would be a matter of time before GLC plantation mergers took place but, “unlikely in the immediate future. 

“It makes sense for the merger as I believe there are currently too many GLC plantation companies in operation. Ideally, there should only be one mega GLC plantation group or the most, two GLC plantation companies,” he said.

A plantation analyst with a local bank-backed group said: “Prior to the merger, GLC plantation companies must be able to meet the top plantation benchmark criteria like high oil extraction rate, below RM700 per tonne cost of production and yield of fresh fruit bunches per mature hectare.

“Some brokerage houses were reluctant to rate GLC plantation companies due to the absence of these criteria, making these counters rather unexciting to track on Bursa Malaysia.” 

Although, most GLC plantation companies had large land bank, many could not compete with non-GLC companies like IOI Corp Bhd, Kuala Lumpur Kepong Bhd and United Plantations Bhd in terms of efficiency, the analyst added.