Kuala Lumpur, 02 August 2001(Business Times) - KUMPULAN Guthrie Bhd issignalling its intention to make oil palm its ticket to bigger things withthe group's ambitious US$368 million (US$1 = RM3.80) acquisition ofMinamas plantation in Indonesia.
The company expects demand for edible oil to increase with most of itconsumed by Asia, taking up 80 per cent of the world's population growth.
Developing regions are expected to account for 42 per cent populationgrowth of 1.7 billion between 2000 and 2010.
And oil palm is seen leading other edible oils as choice with the lowestcost.
It has half the cost of other major oils, with 1ha of oil palm producingthe same amount of oil as 10ha of soyabean oil plantation.
At a recent briefing, company officials said Guthrie's value has beenoverlooked by investors.
They cited the company for having over 100 year's experience, being thelargest Malaysian player in Indonesia, and a leading biotech and seedbreeder.
Chief executive Tan Sri Abdul Khalid Ibrahim said in the briefing thatGuthrie has been revitalised with more active management of assets overthe last five years.
Taking a strategy to unlock the value of the group's landbank, Guthrie hasstarted venturing into property development, converted some 2,000 acreswith another 10,000 acres on the way, and enhanced the value of otherwiseinaccessible land, he said.
However, some analysts remain cautiously optimistic over the Minamas deal,despite its merits which includes Guthrie boosting planted hectarage toover 150,000ha.
"Indonesia has its political risks, although conditions have somewhatstabilised.
There is also concern of Guthrie having geared-up by more than seven timesto pay for the US$368 million deal despite the current global economicsituation," said an analyst who tracks the counter.
The company's shares rose 3 sen to end at RM2.20 yesterday with a total of157,000 shares changing hands.
Guthrie had last borrowed RM1.5 billion in November to finance the Minamasdeal, and this raised long-term borrowings to RM1.66 billion as atDecember 31 last year from RM218.35 million a year earlier.
Based on the group's balance sheet for year ended December 31 2000,Guthrie's long-term borrowings rose by almost 750 per cent after thecompany secured the RM1.5 billion Islamic syndicated financing.
The facility has been fully drawn down.
With the acquisition of Minamas from the Indonesian banking restructuringagency, Guthrie also took over Minamas' existing bank loans of US$170million.
Nevertheless, Abdul Khalid contends that buying the Minamas plantation ismore beneficial than buying a plantation in Malaysia.
"Indonesian land is cheaper than Malaysia.
Production cost is 30 per cent lower while yields are 30 per cent higher,"said Abdul Khalid.
According to him, group crude palm oil production could rise to 750,000tonnes by 2005 compared to 238,000 tonnes currently.
Production cost will fall to RM500 per tonne from RM550 per tonne.
As for the group's borrowings, Abdul Khalid said Guthrie is exploring thepossibility of selling assets or refinancing existing loans.
"On current market value, we only need to sell 3,000ha - 3,500ha ofMalaysian plantation land with development potential to buy the Minamasplantation in Indonesia," said Abdul Khalid.
According to Khalid, the group could invest an additional RM150 million inIndonesia.
Guthrie is also looking at securitising its palm oil mills as an assetbacked security.
Guthrie has a total of 23 mills currently.
According to analysts, the group has always been identified as having ahigh net worth but with low income.
With assets worth about RM6 billion, Guthrie have been generating yearlyprofits of between RM100 million and RM400 million due to risingproduction costs, slow property development profits and lukewarmmanufacturing results.