Companies merger to boost Malaysia's palm oil status

A merger of three Malaysian plantation conglomerates will create the world's largest listed palm oil estate, and boost the country's status as a palm oil producer amid growing regional competition, analysts said.
The government-linked companies, Golden Hope Plantations, Sime Darby and Kumpulan Guthrie and six of their listed units, last week suspended trade in their shares ahead of what they said was a "major corporate exercise."
The merger, expected to be announced Monday, will mark Malaysia's biggest such undertaking ever.
The government has thrown its support behind the planned merger, with deputy prime minister Najib Razak saying it will create a "formidable group" on the back of strengthening global demand for palm oil.
Analysts said the move underlines the expansion of Malaysia's agriculture sector as it attempts to carve a niche for itself in the face of growing competition from India and China.
"The competition from China and India is much fiercer in the manufacturing sector. The government realises that it has to transform its economic model by moving the agricultural sector higher up the value chain," an analyst from brokerage Hwang DBS-Vickers said.
Malaysia is also in the midst of rehabilitating its government-linked companies (GLCs) to improve their efficiency and competitiveness - moves analysts said could help to stave off competition from neighbouring Indonesia.
While Malaysia is the world's biggest palm oil producer, Indonesia is expected to claim the top spot status by 2007 due to an aggressive expansion of its plantation sector.
Malaysia's crude palm oil (CPO) production in 2005 reached 14.96 million tonnes, which raked in some 28.6 billion ringgit (7.7 billion dollars) in export earnings for the industry, the Malaysian Palm Oil Board said.
Indonesia's national CPO output was at 12.5 million tonnes, according to data from the country's Department of Agriculture.
"The government is really serious in its GLC transformation," said another analyst with a local brokerage.
"The current administration has resolved to raise the standards of GLCs to make them world-class companies. This may be one such move," he said. "I think it can be done if they have the right management and efficiency."
Once merged, the new entity will have a combined market capitalisation of 7.23 billion dollars, employ about 93,000 people, and will be the country's fifth-largest company on the stock exchange.