The Malaysian Insider

Business

Markets buzz with talk of China-Sime Darby deal

KUALA LUMPUR, Nov 4 — With China’s President Hu Jintao visiting Malaysia next week, speculation is swirling the government may finally seal a deal to sell 10 per cent of planter Sime Darby to a Chinese group.

The Malaysian Insider reported in September that Malaysia had offered China the stake in Sime, the country’s biggest palm plantation firm by land ownership, but this was dismissed by Prime Minister Datuk Seri Najib Razak as pure speculation.

The chatter about the agreement that could be worth about US$1.6 billion (RM5.4 billion) is back, with one investment bank spelling out likely implications of the possible deal.

“Sime Darby could also spin off its plantations business, with a Chinese state-owned company taking a direct stake, since there would be little strategic value in its property and car businesses,” said the research report, obtained by Reuters through an investment banking source.

The source was not authorised to have the bank’s name cited because the report was meant for internal use.

Sime did not reply to an email from Reuters on the market talk. Based on Sime’s market value, a 10 per cent stake would raise US$1.6 billion.

The company’s China operations accounted for 11-12 per cent of its revenue and 3-4 per cent of operating profit in fiscal 2008 and there is strong potential for growth given the size of China’s population.

Sime shares have jumped 71 per cent this year, outperforming a 42 per cent rise in the broader market index and a 57 per cent gain in the plantation index.

The government and various state funds own almost 70 per cent of Sime, the country’s largest company valued at about US$16 billion, and Najib has said he wants companies with close links to the government to become more efficient.

China’s strategic backing will enhance Sime’s business in the country, where it is involved in motor and heavy equipment distribution, water treatment services, port operations, property development and palm oil sales and marketing.

Hu visits Malaysia from Nov. 10 to Nov. 11 on his way to the Apec meeting in Singapore, and will hold talks with Najib.

Analysts have previously said Sime needs a big overhaul, including possibly listing its prized plantations business and selling its underperforming motor unit, to boost valuations and compete better with fast-growing rivals.

The deal, if it materialises, is expected to serve the national interests of both countries as well as Sime’s, which has invested US$1 billion in six business segments in China.

The research report said China is keen to dilute Singapore-listed Wilmar’s dominance in the Chinese edible oil market, and may see the Sime investment to pursue this, said the investment bank’s research report.

Wilmar plans to list its China business to tap investor interest in the biggest market and to raise cash for acquisitions.

Sime’s top management has been promoting its strategy of entering China’s edible oil market in global road shows in recent months and the stake sale could help fund that expansion.

Referring to the possible deal, the research report said: “While it is a noble idea and has the blessings of the Chinese government, execution remains the underlying risk.”

By finalising a deal with Sime, China, which imports a third of its edible oil demand, stands to lock in future supplies with demand growing at about 5 per cent per year.

China is Malaysia’s main market for refined palm products, importing about 300,000 to 400,000 tonnes of refined palm olein a month.

Sime currently exports about 10 per cent or 200,000 tonnes of its palm oil to China. Malaysia is the second biggest palm oil producer in the world, after Indonesia.

Refined palm olein is used as a cooking oil and for the production of noodles, soap and margarine.

China has aggressively eyed commodity-related assets overseas, including the now aborted US$19.5 billion deal to acquire a stake in Rio Tinto and more recently, the US$7.2 billion takeover of Canada’s Addax Petroleum by Sinopec. — Reuters

Comments (1)

written by Tiger - Dragon, November 05, 2009

The core issue here is fair trade. The individual capitalist system that have dominated the economic system for over a century has failed big time in 1929 and 2008. Even the most able and powerful US Government has no control of its economic destiny, that is manipulated by a few capitalists that has gone out of hand, that have created an unprecedented economic havoc in the US that will linger for decades to come.

Twenty years ago, Michael, an Australian lamented that the Yanks (Americans) plundered Australian natural resources for pittance. Then, the US conglomerates have to set up shop in Australia to get the resources dirt cheap. It was very much like the British building a good network of roads and railways in the 1900s to ship out as much tin and rubber and as quickly as possible from Malaya back to the UK. Today, the new lopsided, unfair trade channel is the equity markets. The British and the US capitalists use Rio Tinto, BHP Billiton, Anglo American, Woodside, BP, ... to suck the world natural resources in Malaysia, Australia, Brazil, Canada, Chile, South Africa, ... dry.

The CEO and Chairman of BHP Billiton and all others are only mouthpieces for the individual capitalists. The biggest shareholders of Rio Tinto, BHP Billiton, BP, Woodside, ExxonMobil, ... are mainly British and US subjects. Most of the BHP Billiton Australian venture revenue will be dispersed in US and UK. Australia still get pittance for its natural resources today!

The Australian Government has been duped by the individual capitalist in rejecting the Chinalco - Rio Tinto deal. Will the individual capitalists in UK and US pour in the money to develop Rio Tinto, give a fair price to Australia, give back something to Australia? The answer is no. Rio Tinto will stagnate. It will cut employment in Australia to the bone. It will abandon the Australian venture if it is not viable. The merger, de-merger, consolidating game with BHP Billiton will go on. All these are harmful to the Australian economy, even though it has a huge natural resources base.

As for the China-Sime Darby deal, look at it this way. See it as a strategic partnership which offer a gateway to Malaysia. UMW for one has already got a deal to build a pipeline worth RM billions. It is a gateway for many products and services into China. What is important at the end of the day is this. The strategic partnership must be fair and benefit both sides mutually. China has a lot of leeway. A harmonious trade will come with it as a bonus. Nothing can be better than that!

As much as rubber and palm oil that Malaysia has, China can swallow all of them. It may not be enough for the huge Chinese market. This partnership will go for the real thing - real and fair prices for the real Malaysian commodities.