KUALA LUMPUR (March 21): CGS-CIMB Research is positive on IOI Corp Bhd's significant breakthrough in the dispute resolution for the IOI Pelita land in Miri, Sarawak at a dialogue session held by the Sarawak government.
In a note on Friday night, CGS-CIMB said the potential settlement, which IOI Corp announced last week, is positive from an environmental, social and governance perspective.
CGS-CIMB also sees the matter positively, as it will free up IOI's management resources that have been devoted to settling this dispute, which has been ongoing since 1997, making it one of the longest running disputes in the state. IOI Corp will also be able to gain back full control of 5,000 hectares of oil palm estates, where access to the land has been negatively impacted by the land dispute, it added.
In its announcement, IOI Corp said IOI Pelita had offered to relinquish its interest over all remaining land in Miri that has not been planted with oil palm by them, at the dialogue that was attended by all eight community groups. This amounts to a sizeable 5,000 hectare out of the total land area of 9,000 hectare, said CGS-CIMB.
"In conjunction with the intended relinquishment of interest by IOI Pelita, the Sarawak State Government has made a far-reaching and unprecedented offer to declare that area of approximately 5,000 hectares of land a Native Communal Reserve and subsequently grant the communities communal and individual land titles. This gives better legal rights and protection to the communities than the native customary rights (NCR)," CGS-CIMB said.
However, it noted that IOI Pelita's offer is conditional upon all the parties involved reaching an agreement on the exact terms of the final dispute settlement. These terms will be discussed at the upcoming last stage of the resolution process, the negotiation stage, where expert advice will also be offered to the communities.
CGS-CIMB said the negotiation will commence as soon as the current interstate travel restrictions are lifted.
The IOI Pelita land dispute with local communities in Tinjar, Sarawak has been ongoing for 14 years. There were many attempts to resolve the dispute over the years, but none had succeeded.
"We gathered from IOI Corp's 2020 annual report that the net carrying value of the Tinjar land was around RM6.1 million on June 30, 2020. As such, if the final dispute settlement is reached, IOI Corp may need to write-off the carrying value of this land of RM6.1 million or 0.5% of its FY22 net profit due to its plan to relinquish the land," said the research house.
Overall, CGS-CIMB is expecting the news to have minimal impact on IOI's recurring earnings.
"In terms of timeline, we estimate the settlement can only be reached in 2H2021 at the earliest, due to current interstate travel restrictions," it said.
IOI Corp was last traded at RM4.24, giving the group a market capitalisation of RM26.65 billion.