Group manages 712,000-acre forest estate in Sabah

Established in 1982, Sabah Forest Industries Sdn Bhd (SFI) is one of the largest timber growers and wood processors in Malaysia.

At present, the group manages a 712,000-acre forest estate in the south-western part of Sabah. Of the total forest land under its management, about 683,000 acres are operated under a 99-year concession granted by the state government from 1996, while about 29,000 acres are owned by SFI.

SFI is also engaged in the manufacturing of pulp, printing and writing paper, as well as integrated wood-based activities such as the extraction and sale of commercial timber and the downstream processing of sawn timber and plywood in Sipitang, Sabah.

Its pulp mill comes with an annual capacity of 240,000 bone dry tonnes, half of which is manufactured into writing and printing paper for domestic and international markets, while the other half is exported as market pulp.

Its wood products are mainly exported to Iran, Syria, Yemen, South Africa, Jordan, and Saudi Arabia.

SFI is currently still majority-owned by Ballarpur Industries Ltd (BILT), India’s largest pulp and paper manufacturer.

BILT emerged as the largest shareholder in SFI after completing its acquisition of a 98% stake in the company from Lion Forest Industries Bhd (LFIB) in 2007 for US$261mil, or about RM945mil based on the exchange rate then.

The debt-laden Lion group is led by tycoon Tan Sri William Cheng.

BILT is a member of the Avantha Group, which is one of India’s largest business conglomerates, with operations in 90 countries and more than 25,000 employees worldwide. Its business interests include engineering, power, information technology, food processing, paper and pulp, farm forestry, chemicals and infrastructure, among others.

LFIB had then said the reason for the disposal of its entire stake in SFI to BILT was because there were insufficient incentives for the group to maintain and operate SFI, as there was no foreseeable significant expansion and growth potential.

“In view of the increasingly competitive market and volatile market for pulp, paper and timber, coupled with lack of sustainable growth and constraints of economies of scale, the opportunities for SFI have diminished in recent years,” LFIB had then said in its filings with Bursa Malaysia.

The Sabah state government currently holds about a 1.9% interest in SFI.

SFI’s business has indeed proven to be challenging over the years and BILT has not been very successful in turning around the loss-making company. Hence, selling the business has long been on its agenda.

In 2015, BILT attempted to sell its entire stake in SFI to Pandawa Sakti Sdn Bhd for US$500mil, but the deal fell through a year later.

(Pandawa Sakti is an associate of delisted property developer Gula Perak Bhd. The company is led by Datuk Lim Sue Beng, a veteran corporate figure, and one of the promoters of the controversial Malaysia-Indonesia bridge planned over the Straits of Malacca and a failed attempt at an urban mass transit system in Melaka.)

As financial pressure continued to mount, about 1,500 of SFI’s employees were told to undergo a temporary layoff scheme in late 2017 and take a 50% paycut effective January 2018.

In April 2018, BILT entered into a deal to sell its entire stake in SFI to Pelangi Prestasi Sdn Bhd for about US$310mil.

Pelangi Prestasi is a unit of the Albukhary Group, a privately-owned conglomerate led by tycoon Tan Sri Syed Mokhtar Albukhary, with involvement in the banking, seaport, e-commerce, construction, engineering, book retail, sugar, oil palm plantation and airport management sectors.

Under the arrangement, Pelangi Prestasi would assume control of SFI, including all its assets, land titles and timber licences.

With SFI now facing an uncertain fate, Sabah State Chief Minister Datuk Seri Mohd Shafie Apdal in March expressed interest to increase the state government’s stake in the company.

SFI posted a net loss of RM354.7mil for the financial year ended March 31, 2017, on a revenue of RM68.8mil.

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