Kulim buys PNG oil palm estates for US$175m

Business Times | 2010/02/26

By Ooi Tee Ching

Kulim's 51 per cent-owned subsidiary New Britain Palm Oil Ltd will borrow US$200 million to finance the purchase from Cargill and Temasek

PLANTATION company Kulim (Malaysia) Bhd (2003) is paying US$175 million (RM597 million) to buy some 25,000ha of oil palm estates in Papua New Guinea from the world's largest agribusiness company, Cargill Inc, and Singapore government investment arm Temasek Holdings.

In its filing to the stock exchange yesterday, Kulim said the deal was expected to close by end-April.

Kulim's 51 per cent-owned subsidiary, New Britain Palm Oil Ltd (NBPOL), will borrow US$200 million (RM682 million) to finance the purchase, out of which some US$25 million (RM85 million) will be used for capital expenditure at the three estates, namely Higaturu, Milne Bay and Poliamba.

In a telephone interview with Business Times yesterday, Kulim managing director Ahamad Mohamad said the single acquisition will see the group's plantation acreage in Papua New Guinea increase 50 per cent to about 75,000ha.

"Although this purchase will increase our gearing, it is not really an issue because the assets are already income-generating.

"We expect to be able to maintain our dividend payout policy of 30 per cent of our net profit," he said.

NBPOL is buying an 80 per cent stake in the three estates from CTP Holdings Pte Ltd, a joint venture between Cargill and Temasek.

The sale and purchase agreement covers only CTP's oil palm assets in Papua New Guinea. CTP will continue to own and operate two oil palm plantations in Indonesia.

The remaining 20 per cent stake in the three estates are held by the Independent Public Business Corp of Papua New Guinea, an entity established to hold the majority of state-owned commercial assets.

Cargill and Temasek, through CTP, bought the 25,000ha from the UK's CDC Group plc in 2005. After five years, they now want to sell the estates to NBPOL along with various commitments to the local government.

"We believe there is more value in focusing on Indonesia. The oil palm plantations are the only investment we have in Papua New Guinea. Since no other Cargill business is actively investing in Papua New Guinea at this time, we do not have any internal synergies to increase the value of this investment,"Cargill senior vice-president Paul Conway reportedly said.

NBPOL, which is listed on the London Stock Exchange and the Port Moresby Stock Exchange, expects its new refinery in Liverpool, the UK, to start operating in April.

It has a production capacity of 165,000 tonnes a year and counts United Biscuits, maker of McVitie's Jaffa Cakes and Mini Cheddars, among its major customers.

NBPOL is also building a facility in Papua New Guinea that is being specially commissioned for chocolate maker Ferrero. This is expected to be completed by early next year.