Malaysia plans world’s biggest listed producer

Malaysia is set to merge three state-owned plantation companies to form the world’s biggest listed palm oil producer, according to Najib Razak, the deputy prime minister.

Details of the plan to merge Sime Darby, Kumpulan Guthrie and Golden Hope are expected to be unveiled next week. Trading in the shares was suspended on Thursday.

Malaysia, the world’s biggest palm oil producer, aims to take advantage of growing demand for palm oil, which can be used to make biofuels. Palm oil prices have risen 23 per cent this year on expectations that palm oil-based biofuels could provide an alternative to fossil fuels.

Malaysia’s biggest corporate merger to date is aimed at improving productivity and saving costs on the building of biofuel refining plants. The state plantation companies have generally been less profitable and efficient than their private sector domestic rivals, such as IOI.

The new group would have a market capitalisation of more than $7bn, making it easier for overseas funds to invest in what has been a crowded and fragmented sector.

The consolidation is seen as part of efforts by the government of Abdullah Badawi to reform the state corporate sector. The three plantation companies are controlled by PNB, the state-run investment equity fund.

The merger plan was first mooted in 2003, but faced resistance because of possible job cuts.

The combined group would have estimated combined palm oil sales of M$7.4bn (US$2bn) and annual operating profits of M$900m. The three companies produce more than 2.1m tonnes of crude palm oil annually on 600,000 hectares of plantation land in Malaysia and neighbouring Indonesia.

Sime Darby, which also has construction, power and car distribution businesses, would form the biggest component of the new group.

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