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 IOI buying into Sarawak firms

19/03/2008 (The Star Online), Kuala Lumpur - IOI Corp Bhd has proposed to acquire major stakes in several plantation companies in Sarawak that own a combined 44,350ha in the state for RM439.85mil.

The acquisitions, slated for completion in the second quarter this year, will see IOI group increasing its plantation land holding to 213,800ha in Malaysia and, inclusive of its Indonesian joint venture, to a total of 365,800ha.

IOI said in a statement yesterday that it had entered into agreements with Double Dynasty Sdn Bhd and its subsidiaries, as well as with Nirwana Muhibbah Sdn Bhd, where IOI's effective stake in the plantation land owned by the acquiree companies is equivalent to about 65%.

The balance stake is held by the Sarawak Land Custody and Development Authority and local natives, where the acquiree companies own native customary land, it added.

IOI currently has about 9,000ha of oil palm plantations in Sarawak.

According to IOI, the proposed acquisition would enable the group to expand its core palm oil business and capitalise on the bright prospects of the palm oil industry.

The purchase consideration was based on the current valuation for the 44,350ha – of which 13,500ha are planted – and a 60-tonne-an-hour palm oil mill.

The IOI group owns 169,450ha in Malaysia, of which 149,000ha are planted, and 152,000ha in Indonesia via a joint venture, of which 43,000ha are planted.

Analysts contacted by StarBiz said IOI's latest acquisition came as “no surprise” as the group had of late indicated its intention to buy large tracts of plantation land in Malaysia as well as set up processing plants in Europe.

An analyst with a local bank-backed brokerage said that given the group's healthy cash position, IOI could easily finance the purchase of the Sarawak plantations via its internal funds. At end-December 2007, IOI's cash balance stood at RM1.64bil.

The analyst said while the scarcity of plantation land in Malaysia had resulted in many local companies going to Indonesia in search of land, he believed “many are now zooming in on the native customary right (NCR) land development scheme in Sarawak.”

The scheme was initiated by the Sarawak government to develop under-utilised land owned by natives for large-scale development, notably for joint-venture plantation development. Sarawak is said to have about 1.5 million hectares of NCR land suitable for oil palm cultivation.

OSK Research, in a report, said participation in the NCR scheme would open up opportunities to secure additional land bank. An analyst said IOI's proposed acquisition of the Sarawak plantations could result in a potential re-rating given the group's continued focus on upstream activities.

IOI shares finished 25 sen lower at RM6.65 yesterday.

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