PETALING JAYA: Merger and acquisition (M&A) activities among local plantation companies could touch RM2bil this year compared with some RM1bil a year earlier, say industry experts.
This is in particular for M&As related to brownfield plantations in Malaysia and Indonesia, which are expected to remain robust as more local planters opt for the organic expansion growth mode.
According to industry consultant M R Chandran(file pic below) , the recent Kuala Lumpur Kepong Bhd (KLK) proposed acquisition of IJM Plantations Bhd (IJMP) has set a benchmark for future M&As involving large tracts of brownfield plantations and a controlling interest in an established planter in Malaysia.
In comparison with the rather quiet M&A activity within the plantation sector last year, he said “in terms of price valuation, this year is definitely more interesting, led by the KLK RM1.53bil cash deal on IJMP.
“It is certainly good timing for potential buyers (planters) to pull the trigger, as the borrowing rates are at historic lows.
“So there is no point in hoarding too much cash, particularly for a listed company, ” added Chandran.
For M&As in brownfield plantations, he told StarBiz that “This will depend on whether the deal could match the price expectations of buyers and sellers.
“In today’s environment, the sellers are not deeply financially stressed due to the current high crude palm oil (CPO) and palm kernel prices, ” he said.
Chandran also maintained that brownfield plantations will become increasingly valuable in the future due to environmental reasons.
“It is almost impossible for large listed players to open up greenfield plantations now due to the New Planting Procedure (NPP) compliance requirements under the RSPO and other certification platforms, ” he pointed out.
Therefore, the price tag on brownfield plantations in Peninsular Malaysia could escalate higher between RM140, 000 and RM170, 000 per ha depending on location, status of the land lease, terrain, age profile and agronomic conditions.
“This (prices) could be even higher at RM250, 00-RM300, 000 per ha if there is potential for future property development within the brownfield plantations, ”he added.
For Sabah and Sarawak, new benchmark transactions have also been set over the few years despite the weaker crude palm oil prices in 2018-2019 as cash-rich plantation groups expanded their domestic land banks amid rising policy uncertainties in Indonesia.
The asking price today for brownfield plantations in Sabah and Sarawak is around RM100, 000 per ha depending on the same conditions as Peninsular, he said adding that “However, the status of the land such as the native titles in Sabah and the native customary rights land in Sarawak will be of primary concerns for potential buyers.”
Malaysian Palm Oil Association (MPOA) CEO Datuk Nageeb Wahab meanwhile said many planters in their mission statement for 2020-2021 have cited their intentions to restructure, re-strategise and/or deleverage their operations.
“Undertaking M&As is one way of looking at it.
“I believe big planters such as KLK, Sime Darby Plantations and IOI Corp are all waiting for the opportunity to undertake M&As once the right pricing and availability of the suitable brownfield arises, ” said Nageeb who expects M&As activities among planters in 2021 to be in the same momentum as 2020.
An analyst with a bank-backed brokerage pointed out that there were several listed planters who are expected to put up their non-core but prime oil palm estates for sale this year.
Sime Darby Plantation is believed to be targeting to sell over RM1bil worth of land and more RM500mil in non-core, non-strategic assets between 2020 to 2021 to pare down its borrowings.
Other planters such as TH Plantations Bhd has identified assets worth RM1bil for sale while Boustead Plantations Bhd (pic below) might opt to sell several of its non-strategic but prime estates in the country, he noted.
On the other hand, the analyst said planters with strong cash positions such as IOI Corp and Hap Seng Plantations Bhd and also, Sime Darby Plantations have indicated their intentions to acquire more upstream plantations in Malaysia and Indonesia when the opportunity arises.
IOI Corp, for example, is allocating RM1bil for regional M&As opportunities, he pointed out.
Nageeb of MPOA pointed out that buying oil palm brownfield is now paramount as many international restrictions imposed on converting greenfield into oil palm cultivation.
Many plantation companies, especially those who are RSPO members, have also pledged their “No Deforestation, No Peat, No Exploitation” compliant commitment.
This makes it more difficult for them to venture into greenfield.
He also concurred that the rally in CPO prices, which reached historic levels in May, has led to the price of oil palm brownfield to head north.
Last Friday, the third-month benchmark CPO futures contract for August closed RM186 lower at RM3, 663 per tonne while the CPO spot price eased RM100 to RM4, 050 per tonne.