Way clear for Felda Global to acquire stake in NBPOL after Sime Darby exit

PETALING JAYA: Sime Darby Bhd has aborted plans to buy a 49% stake in New Britain Palm Oil Ltd from Kulim (Malaysia) Bhd, paving the way for Felda Global Ventures Holdings Bhd (FGV) maiden foray into Papua New Guinea (PNG).
Yesterday, Sime Darby announced that it decided not to proceed to buy Kulim's equity interest in NBPOL after the 60 days exclusivity period with Kulim expired on Sept 28.
"Following the expiry of the exclusivity period under the Exclusivity Agreement between Kulim and Sime Darby on Sept 28, 2014, Sime Darby has decided not to proceed further at this time on the proposed acquisition of Kulim's shares in NBPOL," it said in a stock exchange filing yesterday.
With Sime Darby out of the picture, analysts believe that this opens the door for FGV to acquire the London Stock Exchange-listed NBPOL.
There were four companies which had been shortlisted from seven potential bidders for the 49% stake worth at least RM2 billion.
Besides Sime Darby, Singapore's Wilmar International Ltd and FGV were among the shortlisted companies for Kulim's stake, which is up for sale after Kulim failed to raise its stake from 48.97% to 68.97% in July 2013. Kulim first acquired interest in NBPOL in 1996.
Landing NBPOL stake would help FGV attain its 2020 targets, namely to achieve 8.7 million tonnes crude palm oil (CPO) production as well as a plantation landbank to 925,000ha.
FGV, which set a revenue target of RM109 billion by 2020, aims to establish itself as the top 10 integrated diversified agribusiness conglomerate in the world.
NBPOL, with market capitalisation of RM4 billion, has a total landbank of 134,600ha with about 80,000ha of oil palm plantations in PNG and the Solomon Island. It has 12 palm oil mills and one refinery each in PNG and Liverpool.
One analyst whom declined to be named opined that FGV could ride on Felda Group's strength in the development of smallholders plantation to broker a deal as NBPOL has more than 42,500ha mature landbank cultivated by smallholders, who supply the production to NBPOL.
Apart from that, NBPOL is the largest sugar and beef producer in PNG with over 7,700ha of sugar cane plantation and 9,200ha of grazing pastures as well as seed production and palm breeding facility. It has been paying dividends of 12 sen to 30 sen over the last five years except 2010.
Meanwhile, AmResearch analyst Thomas Soon believes that the deal between Sime Darby and Kulim fell through due to pricing issues.
In a recent report, Moody's had expected Sime Darby's proposed purchase of NBPOL to cost around RM6 billion.
It said that if the acquisition was funded solely by debt, Sime Darby's gross leverage could reach 3.2 times which would be too high for its current A3/stable rating.
Meanwhile, MARC which had expected Sime Darby to fund the acquisition through a combination of existing cash and borrowings of about RM2.1 billion, noted that the total costs could potentially increase should Sime Darby be required to make a general offer for the remaining shares in NBPOL.
It added that while Sime Darby has sufficient liquidity and financial flexibility to undertake the acquisition, any sharp increase in borrowings without concomitant measures to reduce its leverage could weaken group credit metrics to a level that may not commensurate with the current ratings.
Sime Darby's shares were down 3 sen or 0.33% to RM9.15 yesterday, while Kulim's shares fell 10 sen, or 2.99% to close at RM3.25 sen. FGV's shares closed unchanged at RM3.53.