IOI building muscle to become Stronger and Bigger

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Dec 13 2007
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Although it wasn’t published officially the people around the palm oil industry knew what awaken the plantation sector. It used to be one of the most boring sectors and the related stocks’ movement could out you to sleep. It started with the Super-Merger that saw the merger of Kumpulan Guthrie Berhad, Sime Darby Berhad and Golden Hope Plantations Berhad creating the biggest listed palm oil producer in the world in terms of output and market value under a new company called Synergy Drive. As expected the branding of Sime Darby was too valuable to be put to sleep and the temporary Synergy Drive was renamed Sime Darby Berhad (SIME: stock-code 4197) again.

In actual fact the Super-Merger involved 9 (nine) listed companies and somehow FinanceTwitter believed the shareholders were under-offered. Almost simultaneously, other palm oil players were awaken and sensing that they could be eaten up alive (not that it have not happen before), the boring chess game begun its interesting movement. Less than a month after the mega-merger, IOI Corp Berhad (KLSE: IOICORP, stock-code 1961) acquired Pan Century Group, operator of an edible oils refinery for RM423 million from one of India’s conglomerates, the Aditya Birla Group. The acquisition by IOI Corp created the the world’s biggest vegetable oil-based fatty acid producer in the world.

Then the Kuok Group, controlled by tycoon and richest man in Malaysia, Tan Sri Robert Kuok, undertook a mammoth S$6.6 billion (RM15.18 billion) corporate exercise to merge several of its companies in Malaysia and Singapore – Wilmar International Ltd (SIN: F34) and PPB Oil Palms Bhd (KLSE: PPB, stock-code 4065). It was then Kuala Lumpur Kepong Berhad’s (KLSE: KLK, stock-code 2445) turn when it announced the acquisition of Swiss-based Dr W Kolb Holdings AG, a specialty oleochemical holdings company, for 135 million Swiss francs (RM393.39 million).
IOI Corp vs Sime DarbyAmongst all the players, the most aggressive would be IOI Corp Berhad. Taking the second seat in terms of market capitalization behind Sime Darby Berhad is not a situation to be taken with complacency. In terms of landbank IOI Corp’s figure stands at 320,000 ha (after the 152,504ha of palm oil plantation in Kalimantan from Indonesia’s Harita Group) while Sime Darby is comfortably at 543,626ha of landbank. And IOI Corp’s executive chairman Tan Sri Lee Shin Cheng has no plan of stopping at the current level.

Yesterday, it was reported that IOI shareholders approved a planned US$600 million (RM2 billion) issue of bonds exchangeable to new shares. “We actually have enough funds for expansion and upgrading of manufacturing facilities. The money from this bond issue is mainly for acquisitions.” IOI executive chairman Tan Sri Lee Shin Cheng said after shareholders meeting in Putrajaya.
While Lee said the company was looking at either Malaysia or the IOI Lee Shin Chengregion for future acquisitions and it’s not to “compete” with Sime Darby, you just got to take that with a pinch of salt. He knew too well how the corporate scenes in Malaysia are being played. Furthermore to be known as the most efficient producer in squeezing six tonnes of crude palm oil per hectare in a year, Tan Sri Lee Shin Cheng is no ordinary man you could squeeze easily. In addition there is still some RM300 million left unspent in IOI’s planned capital expenditure for the current year ending June 2008. Add that to the latest RM2 billion war-chests from the bonds issued and you can guarantee of more interesting acquisition(s) from IOI Corp.

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