NatOleo A Win-Win Deal For Kulim And Wilmar

Kulim will be able to cut debts while Wilmar will strengthen its position

PETALING JAYA: Diversified plantation group Kulim (M) Bhd and Asia’s leading agribusiness group Wilmar International Ltd are set to become winners from Kulim’s unit Natural Oleochemicals Sdn Bhd (NatOleo) sale deal.

On Wednesday, Wilmar, via its unit PGEO Group Sdn Bhd, announced its proposed acquisition of Kulim’s 91.38% stake in NatOleo, one of the world’s largest oleochemical producers, for RM450mil cash.

According to analysts and industry observers, Kulim’s NatOleo divestment would enable the group to cut its debts estimated at RM1.6bil and allow it to expand its upstream plantation operation and fast-food restaurant business. Kulim bought the stake in NatOleo some 16 years ago.

A source close to Kulim said the exit from downstream oleochemical business was a wise move.

“It is getting tough to market NatOleo products like glycerine, fatty acids and soap noodles, given the stiffer competition from efficient players with better global marketing network.

“Kulim is better off reaping good money from its upstream plantation operations in Papua New Guinea (PNG) and the Solomon Islands as well as its thriving fast-food restaurants,” he added.

NatOleo had attracted bids from major oleochemical companies rumoured to be Sime Darby Bhd, Indonesia’s Sinar Mas and Wilmar.

This is despite it incurring a net loss of RM23mil on the back of RM1.1bil revenue for the financial year (FY) ended Dec 31, 2009.

Some analysts expect Kulim to post a net gain of RM168mil for FY2010 from the NatOleo disposal but its net profit in FY2011 would likely be reduced by about 5% due to the loss of earnings from oleochemical business.

Back in 2007, Kulim was also questioned for selling its entire 63,260ha plantation in Indonesia when many other Malaysian plantation companies were actively acquiring plantation land there.

However, Kulim later expanded via acquisitions of greenfields and plantations in PNG and Solomon Islands which have since generated sound profits for the group.

“Similar to the disposal of the Indonesian estates, the route taken by Kulim to divest NatOleo is definitely not done hastily. It has taken into account the big disparity in the future returns from NatOleo versus its thriving upstream plantation operation overseas,” the source said.

While most analysts view the RM450mil proposed purchase price as a fair value, a senior palm oil trader claims that Kulim was selling NatOleo for a song to Singapore-based Wilmar.

“Setting up a new oleochemical plant will cost RM600mil to RM700mil. Given the strategic location of its Pasir Gudang refinery, which is near the port, NatOleo should be valued higher.”

OSK Research, in its corporate news flash, said the move by Wilmar was positive as NatOleo would complement the company’s business.

However, a sizeable oleochemical company said this could change the industry’s competitive landscape.

It said the other players’ profitability could be eroded should a strong company like Wilmar decided to embark on a price-cutting strategy to garner market share.

Analysts, meanwhile, concur that Wilmar has the capabilities to further develop NatOleo’s potential.

Its extensive marketing network, particularly in highly populated India and China, speaks for itself.

Wilmar, in a statement issued in Singapore on Wednesday, said the acquisition would allow it to consolidate its leading position in the global fatty acids market.

Source: The Star by Hanim Adnan

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