Malaysia merges palm oil firms to boost production

By Dominique Patton

- Last updated on GMT

Three Malaysian oil plantation firms are to merge to create the
world's largest listed palm oil producer, accounting for 6 per cent
of global production, revealed adviser CIMB Investment Bank
yesterday.

The government-linked companies Sime Darby, Kumpulan Guthrie and Golden Hope will be owned by a new entity, Synergy Drive, set up by the bank. Malaysia's government has backed the move, hoping that synergies will allow the larger firm to combine resources and cut costs, making it more competitive against rising foreign competition in the region. It is not yet clear what impact, if any, the deal will have on food makers in the region. The industry uses an increasing amount of palm oil in processing but much of the new demand is coming from expected fast growth in biofuel production. Malaysia is currently the world's largest palm oil producer but it is expected to be overtaken by Indonesia, whose production is forecast to rise to 17.6 million tonnes from an estimated 15.9 million tonnes in 2006. Malaysia's 2007 output is forecast to increase to 16.45 million tonnes from 15.93 million, according to analysts at Oil World. The merged entity will manage about 600,000 hectares of plantations, second to unlisted Malaysian state plantation firm Felda with 800,000 hectares. It will have a combined market capitalisation of US$7.23 billion, employ about 93,000 people, and will be the country's fifth-largest company on the stock exchange. It is expected that the palm oil producer will be better able to expand overseas and seek out new markets. However it will not be large enough to have a major impact on the global market for crude palm oil (CPO), say analysts. "It's big, but not big enough to corner the world's CPO market,"​ Yin Shao Yang, an analyst at KN Kenanga Research, told AFP. Another analyst noted that the firm will be twice the size of IOI Corp, which is not state-controlled and seen as the country's most efficiently-run plantation company.

Related topics: Business, Industry growth, South East Asia

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