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This article first appeared in The Edge Financial Daily on February 23, 2018

KUALA LUMPUR: Sime Darby Plantation Bhd has submitted an expression of interest for India’s largest edible oil manufacturer Ruchi Soya Industries Ltd, said its executive deputy chairman and managing director Tan Sri Mohd Bakke Salleh (pic).

“The discussions are still at a preliminary stage,” said Mohd Bakke, adding that a due diligence must be carried out before any indicative offer can be made.

Ruchi Soya, currently undergoing bankruptcy proceedings under India’s National Company Law Tribunal, has a 19% market share in India for its downstream edible oil products, said Mohd Bakke.

Two other global players, Musim Mas Group and Cargill Archer Daniels Midland, have expressed interest in Ruchi Soya, according to a CNBC report on Monday. Other bidders for Ruchi Soya include Adani Wilmar, Godrej Agrovet, and Patanjali & Emami, the report said.

Listed on the New York Stock Exchange, Ruchi Soya has a market capitalisation of RM5.63 billion based on its share price of RM17. Last year, DBS Bank and Standard Chartered Bank filed insolvency proceedings against the firm.

Mohd Bakke also said a strategic investor from Papua New Guinea (PNG) would be an ideal buyer for a 40% to 49% stake in Sime Darby Plantation’s 100%-owned New Britain Palm Oil Ltd (NBPOL) in PNG.

Although several funds have expressed interest, “we have not arrived at any satisfactory conclusions so far”, Mohd Bakke said, adding that a deal would only be considered at the right time and for the right price.

However, he maintains that the divestment has “always been a part of the plan” since Sime Darby Plantation’s acquisition of the plantation firm for £1.07 billion in March 2015.

It initially offered to buy all of Kulim (M) Bhd’s 48.97% stake in NBPOL at £7.15 per share, triggering a general offer for the remaining shares accepted by shareholders at the time.

Going forward, Mohd Bakke said crude palm oil (CPO) prices would hover between RM2,500 and RM2,600 until June, affected by seasonal weakness, poor weather and high soybean production.

Over 100,000ha or some 20% of the group’s land bank were affected by bad weather that continued into January this year, said Helmy Othman Basha, chief operating officer of Sime Darby Plantation’s upstream segment.

“About 50% of our production area in PNG and Kalimantan, Indonesia, are affected,” he said, adding that although improvements have been seen, the group would take precautions against bad weather.

Despite this, Mohd Bakke said CPO production is expected to increase in line with the expected growth in Malaysia’s total production of 20.5 million to 21.1 million tonnes compared with last year’s 20 million tonnes.

“We hope to see the trend continuing for the second half of 2018,” he said, as the group expects to close the current financial year ending June 30, 2018 (FY18) on a “satisfactory note”.

Mohd Bakke said a ban on palm oil used in biodiesel by the European Union would pose a negligible impact on Sime Darby Plantation, as he expects higher demand for palm oil for usage in food instead.

He added that the weather, a strong ringgit, and market demand and supply would always be risks monitored by the palm oil industry.

Yesterday, Sime Darby Plantation posted a 34.5% increase in net profit to RM477 million for the second quarter ended Dec 31, 2017 (2QFY18) due to higher contributions from its local upstream operations and reduced finance costs as a result of lower borrowings.

Revenue gained 4.1% to RM4.09 billion, while fresh fruit bunch production improved 2% to 2.76 million tonnes as output recovered from the El Nino weather phenomenon.

For the cumulative six months, net profit more than tripled to RM1.45 billion due to a gain on the sale of land to Sime Darby Property Bhd at RM676 million, as well as a one-off reversal of accruals of RM95 million in 1QFY18.

Excluding the gain on the land sale, normalised net profit for the six months was 39.8% higher at RM657 million, from RM470 million a year ago, mainly driven by its Malaysian upstream operations. The group declared a 3.5 sen interim dividend for FY18, payable on May 4.

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