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IOI on the prowl for more Indonesian estates

KLUANG, JOHOR: IOI Corp Bhd, which now has RM3 billion in cash reserves, is on the prowl to acquire more oil palm estates in Indonesia. 

“We’re always looking at opportunities to increase our plantation landbank. This sizeable acquisition is likely going to be in Indonesia,” said executive director Lee Yeow Chor. He, however, declined to elaborate on the timing of the impending purchase.

Lee then signalled that he is optimistic about the prospects of IOI’s main-stay palm oil business, following drought-like weather in the last two years that resulted in challenging conditions for plantation companies.

The onset of dry conditions wrought havoc on the productivity of the country’s oil palm trees. This meant that IOI, which has a matured oil palm area of about 140,000ha, is not seeing much growth in oil palm fruit production in the current year ending June 2012. This, Lee said, is having an impact on palm oil prices.

“Lower production will not have an effect on our financial performance because prices will more than compensate for it,” he said after a tour around its Pamol estate complex here yesterday. He said palm oil prices had averaged around RM3,100 per tonne in the first half of this year.

In the last six weeks, palm oil prices have been on the decline from a peak of RM3,600 a tonne. Yesterday, the third-month benchmark palm oil futures on the Malaysian Derivatives Exchange closed RM61 higher at RM3,130 per tonne. In response, Lee said: “The spike in prices at the beginning of the year was overdone. As the market factors in the eurozone crises, we saw some sell down. 

“In the coming months, however, we should see some price upside. This is because stocks are tight and orders are coming in for Ramadhan in July. Based on these fundamentals, we are confident prices will recover to around RM3,200 per tonne,” he added. 

As early as 2007, IOI invested US$62.63 million to take up a 33 per cent stake in PT Bumitama Gunajaya Agro. This was part of its plan to participate in Indonesia’s oil palm expansion and ensure upstream profit growth.

Today, Bumitama has an agriculture landbank of 191,948ha, of which 119,162ha is already planted up with oil palms. Of that total area, 87,851ha is held under the company and 31,311ha under the smallholders or plasma schemes.

Lee, who is a member of Bumitama’s board of directors, said the group is aggressively stepping up its plantation development programme in Indonesia. The pace of planting is expected to pick up in the coming years. “We aim to plant at a rate of 10,000ha per year,” he said.  

On its property business, Lee indicated that IOI will spin off the arm to be re-listed. “Yes, we plan to list it in Singapore but we’ve not decided on the timing.”

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