This article first appeared in The Edge Financial Daily on August 2, 2018

KUALA LUMPUR: Boustead Plantations Bhd is acquiring 17 pieces of oil palm plantation land totalling 4,915.25ha in Sabah, including a 75 tonne-per-hour palm oil mill, for RM397 million cash.

Boustead Plantations said the move is to replace some of the group’s plantation land in Peninsular Malaysia, which was disposed of in recent years, with sizable plantation land in Sabah at a lower cost.

“This is in view of the rapid developments in Peninsular Malaysia which have resulted in land being less viable for plantation activities. This strategy also presents the group with the opportunity to improve its income over the long term for its future growth,” it added.

In a filing with Bursa Malaysia yesterday, Boustead Plantations said its wholly-owned subsidiary Boustead Rimba Nilai Sdn Bhd has entered into a sale and purchase agreement (SPA) with 12 parties for the acquisition of the pieces of land, which are located in the districts of Beluran, Kinabatangan, and Labuk and Sugut.

“The plantation land is centrally located within the group’s existing estates as well as the recently acquired Pertama Estates. The plantation land, together with these estates, will form a large business unit in Sandakan, which allows the group to further expand its market presence in the state,” it added.

The acquisition of the mill will now replace the group’s initial plan to construct a new palm oil mill at one of the Pertama Estates.

Boustead Plantations plans to fund the proposed acquisition through internal funds and borrowings.

After taking into account the additional bank borrowings of RM350 million to be obtained by Boustead Plantations to partly fund the proposed acquisition, its gearing is expected to increase by 0.14 times to 0.19 times from 0.05 times as at Dec 31, 2017.

Boustead Plantations said between the execution of the SPA and the completion date, it will be entitled to appoint a representative at its own cost to observe the running of the plantation assets to ensure a smooth transition and handover by the completion date.

Upon completion by the first quarter of 2019, the total plantation land bank held by Boustead Plantations will increase by 5% to 98,332ha from 93,417ha. This also represents an increase of 6% in total planted area under oil palm to 79,427ha from 74,985ha.

The proposed acquisition is expected to be completed by the first quarter of 2019.

Boustead Plantations shares closed down one sen or 0.78% at RM1.27 yesterday, bringing it a market capitalisation of RM2.87 billion.