Plantation company Kulim (Malaysia) Bhd does not deny rumours of an offer for its 50.86% stake in New Britain Palm Oil Ltd (NBPOL), which is listed on the London Stock Exchange and Port Moresby Stock Exchange. NBPOL owns more than 80,000ha of oil palm estates in Papua New Guinea and the Solomon Islands. 

The offer is understood to have come from the Petroleum Authority of Thailand (also known as PTT Public Co Ltd), Thailand’s national petroleum entity, which has been exploring the production of alternative energy, including palm oil biodiesel. 

When contacted, Kulim chairman Tan Sri Muhammad Ali Hashim responds in writing, saying that it is very common for businesses to receive offers from third parties to forge a partnership or acquire assets in their stable.

“The same holds true for Kulim, which has received offers on a continuous basis from interested parties worldwide, expressing their interest to partner with and/or acquire shares in its member companies, including NBPOL. It is only fair that Kulim gives every offer its due consideration,” he says. 
However, he did not elaborate on the offers received.

According to NBPOL’s website, Kulim became a shareholder in 1996, with an 80% equity interest, when the Papua New Guinea government privatised its investment in NBPOL. The balance 20% was transferred to the West New Britain Island provincial government under a trust arrangement.

Kulim had been gradually selling down its stake in NBPOL to fulfil its commitment to the Papua New Guinean government at the time of the takeover in 1996. Then in December 2007, 25 million new NBPOL shares were floated on the London Stock Exchange, raising RM437 million, mainly to finance its expansion.

NBPOL’s operations are located in New Britain Island, which is located in the east of Papua New Guinea’s mainland. It has a plantation landbank of 49,630ha, of which 41,022ha are planted with oil palm. Through a subsidiary, it also owns estates in the Solomon Islands, with total plantation acreage of 6,361ha.   

A plantation analyst with a local brokerage house says Kulim’s 51% stake in NBPOL is the group’s crown jewel, given the unique features of the plantations in Papua New Guinea, which are planted mostly with mature oil palms. The island is rich in volcanic soil, resulting in a higher production of fresh fruit bunches (FFB) than the Malaysian national average of 20.18 tonnes per hectare and oil extraction rate (OER) of 20.21%.

According to Kulim’s FY2008 annual report, the Papua New Guinea estates achieved an FFB yield of 25.36 tonnes per hectare compared with the 22.7 tonnes per hectare in  its Malaysian estates. Oil extraction rate was also higher, at 23.36% versus 19.13%. Similarly, the Solomon Islands estates did better, with an FFB yield of 22.58 tonnes per hectare and an OER of 21.11%. 

Kulim’s Malaysian estates are located in Johor. A total of 35,261ha are planted with close to 80% mature palms. In 2008, the estates registered an FFB and OER of 22.7 tonnes per hectare and 19.13% respectively. The Papua New Guinea operations gave the group’s performance a boost, lifting its FFB yield and OER to 23.76 tonnes per hectare and 21.67% respectively.     

Also, palm oil products from Papua New Guinea enter the EU duty-free, another advantage over Malaysian palm oil. 

“It’s not surprising to see Kulim get offers for its New Britain stake, especially from foreign institutions. This is the group’s crown jewel as New Britain is doing really well, coupled with the fact that Kulim’s plantation estates in Malaysia are being replanted,” says the analyst.

However, he does not believe Kulim will sell the stake as it owns only 50.68% in NBPOL, just enough for it to consolidate its financials into the group.

“If the stake is sold or reduced, its profit before tax will shrink. I doubt they will sell,” he adds.

In 2008, Kulim’s plantation operations in Papua New Guinea and the Solomon Islands contributed 74.8% to the group’s plantation business. In fact, its plantation earnings in 2007 were cushioned by the NBPOL estates, given that the Malaysian estates were in the red.

Indeed, it would be strange if Kulim sold its stake in NBPOL as it had exited its oil palm business in Indonesia to focus on Malaysia, Papua New Guinea and the Solomon Islands. Kulim had owned more than 60,000ha in Kalimantan but decided to focus on Papua New Guinea as returns from Indonesia had been less than encouraging, given similar amounts of investment and management input.

“Papua New Guinea operations had proved to be highly efficient and generated sterling profits, sufficient even to recoup the group’s initial investment. After due deliberations, the group resolved that its long-term interests were best served by concentrating resources where the returns were the highest,” stated Kulim’s 2007 annual report.

Kulim sold all its Indonesian estates in 2007 for US$125 million or RM430 million, generating a gain of RM128 million.

While plantation operations are a major contributor to Kulim’s bottom line, it has a diversified earnings base in the fast food business (through its investment in QSR Brands Bhd, which controls KFC Holdings Bhd along with QSR Ventures Sdn Bhd), shipping, car park management, consumer products and other services.

This article appeared in The Edge Malaysia, Issue 771, Sep 7-13, 2009.