WITH the planned listing of Federal Land Development Authority (Felda) and the merger between Golden Hope Plantations Bhd (GHope) and Island & Peninsular Bhd (I&P), the government may have reached its short-term target to consolidate its plantation and property businesses.
Although some expect the consolidation to continue with the government's other plantation units such as Kumpulan Guthrie Bhd and plantation units of Sime Darby Bhd, further mergers, particularly among Permodalan Nasional Bhd's (PNB) plantation units are unlikely to happen soon.
“I believe the current phase of mergers may have ended for now. At this stage, having a bigger entity may not necessarily mean having a better company,” said an official with one of PNB’s plantation companies.
PNB, which controlled 73% of Guthrie and 41% direct and indirect stake in Sime Darby through Amanah Saham Bumiputra, would not likely rush into calling for a merger of its plantation groups, said the official, who declined to be named.
He added that the GHope-I&P merger had proceeded as planned because I&P had earlier consolidated its plantation business under Austral Enterprise Bhd, while GHope was not a strong player in property development, but had a vast land bank to offer I&P.
So far, the proposed listing of Felda has already created history in producing the country's largest listed plantation group with more than 400,000ha of palm oil plantation land, while the merger between I&P and GHope will result in a company with nearly 190,000ha of palm oil land. Through Guthrie, PNB will also control more than 263,000ha of plantation land in Malaysia and Indonesia.
“The next step in the merger among the units in the PNB group would be more complicated,” said a plantation analyst with a local brokerage, adding that each of the companies had a distinct management style, in addition to having their own strengths and weaknesses.
“Forcing the remaining parties to merge this time around will make them lose their intrinsic values,” he said.
The analyst pointed out that companies such as Guthrie were currently involved in their own restructuring exercises and further consolidation would likely have to wait until they completed their current exercises.
Guthrie is now planning to list its property development unit Guthrie Property Development Holdings Sdn Bhd (GPDH) through an asset swap with its units, Highlands and Lowlands Bhd. The exercise also involves Guthrie's plantation unit Guthrie Ropel Bhd (GRopel) transferring its plantation assets to the group. GRopel would eventually be delisted.
In another exercise, Guthrie also plans to list its Indonesian plantation unit, PT Minamas, by the middle of next year on the Jakarta Stock Exchange. Guthrie is expected to emerge financially stronger upon completion of the three exercises.
A source close to Guthrie said the management would want Guthrie's present structure to remain intact when the group completed the restructuring.
“There were some concerns that once the current exercise was completed, Guthrie would like the rest be asked to merge (with the rest of the PNB group),” he said, adding that the prospect had caused some concern among the group's rank and file.
As for Sime Darby, the group plantation division was operating well on its own and contributed effectively to the group and there was no reason for it to merge with another group, said the analyst.
“Being a conglomerate, it is probably counter productive to ask them to merge now,” he said, adding that Sime's plantation business had in the past been one of the major contributors to the group's earnings, particularly over the past few years when the price of palm oil was high.
A plantation analyst with Mayban Securities Sdn Bhd said there were many options being considered for the consolidation of the government-owned plantation groups. Judging by the recent moves, PNB would likely consolidate its property business first before embarking on further mergers.
Besides I&P and GPDH, PNB has property development interests in Sime's property development unit, Sime UEP Properties Bhd.
“It is easier to start the merger at this level first before involving the larger plantation group,” the analyst said.
According to a senior executive with a plantation company, one option is to allow a single PNB subsidiary to take over the group's overseas plantation interests.
“This is not a new idea and such a move will give an international edge to PNB's investment overseas,” he said, adding that having the international unit would help PNB expand rapidly without the constraints of local laws while enabling the group to benchmark its local operations with that from overseas.
PNB had already expressed its interests in acquiring more plantation assets overseas, particularly in Indonesia and having a single company to handle that expansion might work well for the group, he said.
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