This article first appeared in The Edge Financial Daily, on July 5, 2016.

KUALA LUMPUR: Sarawak Oil Palms Bhd (SOP) has announced the acquisition of a plantation asset in Sarawak, confirming a report in the The Edge weekly yesterday.

The group said it has entered into an agreement with Shin Yang Holding Sdn Bhd to acquire its subsidiary Shin Yang Oil Palm (Sarawak) Sdn Bhd (SYOP) for RM873 million, comprising the purchase consideration of SYOP shares for RM284.4 million and the assumption of inter-company balances of RM588.6 million.

In a filing with Bursa Malaysia, SOP said it also intends to undertake a two-for-seven rights issue of up to 127.8 million shares to raise funds to part finance the proposed acquisition.

The group said the acquisition is consistent with its plans to continue to expand its oil palm cultivation business by acquiring new land banks in Sarawak.

“SYOP has a land bank of approximately 47,000ha in Sarawak, comprising 23,798ha of planted oil palms and 6,772ha of plantable lands. Furthermore, SYOP has a fairly young crop profile, with young palms (four to 10 years of age) and prime palms (11 to 20 years of age) constituting approximately 72% of the total planted area,” it said.

The land bank, along with palm oil mill, is located in Belaga District, Kapit.

The Edge report had noted that the acquisition will substantially boost SOP’s existing 72,563ha, of which 87% or 63,517ha are planted. The company also has six palm oil mills as well as a refinery in Bintulu with an installed capacity of 1,500 tonnes per day.

SOP said the acquisition will enable it to strategically position itself to stay competitive in highly challenging market conditions.

The group believes that the strategic value creation to be derived from the acquisition will translate into operational efficiency thus improving profitability, it added.

“Leveraging on its established track record in estate management practices, SYOP intends to focus on upstream plantation activities of developing the remaining unplanted and immature planted areas as well as maintaining the existing mature planted areas,” said SOP.

The group said funding for the proposed acquisition is expected to be financed by a combination of the proceeds from the rights issue, bank borrowings and internally generated funds.

Based on the indicative issue price of RM2.80 each for the rights shares, the rights issue is expected to raise gross proceeds of about RM357.72 million, it said.

SOP was established in 1986 as a joint venture between the Commonwealth Development Corp and the Sarawak government.

The Shin Yang group, meanwhile, is controlled by Tan Sri King Chiong Ho. The group also controlled 28.6% of SOP after it acquired a 25% stake from the Commonwealth Development Corp.

SOP reported a net profit of RM23.98 million on revenue of RM1.04 billion for the first quarter of financial year 2016 ended March. For the previous corresponding period, its net profit was only RM5.45 million and revenue was RM630.87 million. The better results were attributed to higher trading and sales volumes of palm oil products.

SOP’s share price rose 0.73% to RM4.15 yesterday, giving the company a market capitalisation of RM1.83 billion.