11/10/2007 (Food Navigator) - Asian Palm Oil Company is planning a flotation on Aim this month, according to reports, in a bid to cash in on the increasing international demand for the edible oil.
The company, owned by Dennis Melka, former head of CSFB in Malaysia and plantation director Graeme Brown, will make the initial public offering of £45m (€61m) on the London Stock Exchange's international market for smaller companies.
The funds will be used for the acquisition and development of 33,000 hectares in Malaysia to produce palm oil. The plantations would become productive after three years, and are expected to yield oil at a lower cost than at present.
Palm oil is a form of vegetable oil obtained from the fruit of the oil palm tree, and is found in a diverse range of products including bread, crisps and margarine.
It has become increasingly popular as a result of its health benefits. Although it contains saturated fats, it is free from artery-clogging trans fats, formed when fats are hydrogenated to make them more solid and extend their shelf life.
The oil can also be used as a biofuel and is in increasing demand as more manufacturers choose to opt for greener methods of production.
Global palm oil consumption in 2006 increased by 6.6 per cent to 35.3m metric tons. This is expected to have risen by 5.5 per cent by the end of this year.
The average cost of production for palm oil is €160 a tonne, according to The Financial Times, but APOC intends to produce at a cost of €120. This will be achieved partly by the use of satellites to monitor palm stands and direct contractors.
The newspaper says APOC hopes to achieve a minimum operating profit per hectare of €915 after four years, but this will rise to almost €1,760 as the trees mature. If current prices were sustained, this profit target would increase to €2,745.
The growth in palm oil production has been met with criticism by some environmental campaigners. According to pressure group Friends of the Earth, over 89 per cent of all palm oil is produced in Malaysia and Indonesia, to the detriment of both countries' natural resources.
Greenpeace revealed that the level of deforestation being caused in part by palm oil in Indonesia was so great that it merited inclusion in the 2008 Guinness World Records. This is turn leads to the destruction of wildlife.
APOC claims to be environmentally friendly and sustainable and Melka has argued that the stricter controls in Malaysia compared to Indonesia will help to counter criticisms, thereby benefiting the company in the European market.
Melka and Brown are the co-chief executives and sole investors in the company, having invested €1.94m in the project. Following the initial public offering, they would be rewarded via an options programme.
There are currently three other oil palm producers listed on the London Stock Exchange, and all have experienced strengthening share prices in the past year.