Archive for January, 2013

FGV: Start using B10

January 30, 2013 Leave a comment
This is written by my colleague Zaidi Ismail.

KUALA LUMPUR: MALAYSIA must implement the use of B10 biofuel now to help lift weak crude palm oil (CPO) prices as well as reduce national stockpile.

The B10 is a mixture of 90 per cent diesel and 10 per cent palm methyl ester, which can trim carbon emissions in the environment as well as reduce dependency on fossil fuels.

Felda Global Ventures Holdings Bhd (FGV) president and chief executive officer Datuk Sabri Ahmad said the government must start using B10 because current low CPO prices may weaken further by October, if no positive measures are taken soon.

October, November and December are traditionally high production months for oil palms, which may put a dent on CPO prices. The commodity is currently hovering at RM2,400 a tonne compared with an average of above RM3,000 last year.

“Once B10 is implemented, it can take out one million tonnes out of the 2.6 million stockpile.

“This will help stabilise CPO prices which are currently on a downtrend,” Sabri said during a visit to the New Straits Times Press headquarters here yesterday.

Malaysia mooted the use of B5 (95 per cent diesel and 5.0 per cent palm oil) in 2006 and was supposed to implement its use nationwide by end of last year.

But to date, the green oil has yet to be used on a large scale due to the high cost of production, heavy subsidies incurred by the government, as well as poor demand from export markets.

In June 2012, the Plantation Industries and Commodities Ministry announced revival of the plan and to ramp it up to B10.

Currently, the ministry is in consultations with various parties to revive the programme, which covers the central region such as Putrajaya, Malacca and Negri Sembilan, Kuala Lumpur and Selangor. It will power up government vehicles before being sold at petrol stations nationwide. Sabri said industry players are currently undertaking a study on how it can assist the government to implement the B10.

This year, Sabri said FGV, which is the world’s largest producer of CPO, expects to maintain its performance. FGV made a lower pre-tax profit of RM900 million in the third quarter ended September 2012 compared with RM1.5 billion a year ago, due to lower CPO prices.

Having raised RM4.4 billion from its initial public offering in June last year, FGV plans to use a portion of the proceeds to buy agriculture land in Myanmar and Mindanao in the Philippines to plant rubber and oil palm trees.


Mexico’s vegetable oil tax move offers opportunities

January 29, 2013 Leave a comment
KUALA LUMPUR: Mexico’s decision to exempt import duties on various types of vegetable oils opens up greater opportunities for Malaysian exporters venturing into the market, says Malaysia External Trade Development Corporation (Matrade).

The exemption, to be effective March 1, covers vegetable oils such as soyabean oil and fractions, palm oil and its fractions, safflower oil and its fractions, coconut oil, palm kernel or babassu oil and its fractions, as well as fats and oils, animal or vegetable and their fractions.

Matrade’s trade commissioner in Mexico, Remee Yaakub, advised Malaysian firms planning to enter the Mexican market to capitalise and strategise effectively as they have to compete with regional players.

“Malaysian companies may collaborate with local partners to introduce products through new product launches. With palm oil included in the exemption, they may introduce the health benefits of palm oil and market their products through an assertive awareness promotion,” Remee said in a statement. —Bernama

The high cost of minimum wage

January 28, 2013 Leave a comment
MEF talks on behalf of oil palm planters in Peninsular Malaysia, Sabah and Sarawak.

Planters, especially smallholders who depend on contractors hiring foreign workers to harvest fresh fruit bunches, are feeling the brunt of the minimum wage policy. This is because their income has dwindled as palm oil in the futures market continue to trade at a low price band of between RM2,200 and RM2,500 per tonne, in the last four months.

PETALING JAYA: Food inflation and higher outflow of money are the consequences of the implementation of the minimum wage law, which came into force four weeks ago.

From January 1, employers must pay a minimum wage of RM900 a month in Peninsular Malaysia and RM800 a month in Sabah, Sarawak and Labuan.

In an interview with Business Times here recently, Malaysia Employers Federation (MEF) executive director Shamsuddin Bardan estimated that foreign workers, on average, send back some RM700 each month, which is half of their take-home pay that include overtime claims.

“With a conservative estimate of two million foreign workers here, that works out to be RM1.4 billion flowing out of Malaysia to their home countries every month.

“Starting this year, with the blanket implementation of the minimum wage law, the outflow of money from Malaysia is likely to swell to RM2.1 billion every month,” he said.

The government’s decision to introduce the monthly minimum wage, as part of its efforts to propel Malaysia into a high-income nation, may also result in higher food bills.

Right now, employers in food and beverage businesses have yet to feel the brunt of the minimum wage law. 

“Come July 1, they will no longer be exempted. Small entrepreneurs such as restaurant hawkers, wet market and stall operators will then seek to pass on the extra cost by raising food prices. That is when we will experience costlier teh tarik and roti canai,” Shamsuddin said.

Another side effect of the blanket implementation of the minimum wage law is that local workers’ interests are being undermined. “A Malaysian gets the same basic wage of RM900 but a foreign worker enjoys free housing, water, electricity and transport. For the same minimum wage, a local does not enjoy these benefits,” he said.

In view of this, the MEF is appealing to the government that such subsidies and benefits as provided by employers be included in the minimum wage to rebalance the interests of local workers.

Members of the Malaysia Corrugated Carton Manufacturers’ Association (MCCMA), which are predominantly small and medium enterprises, have seen half of their profits shaved off as a result of the minimum wage law.

“We are at a crossroad. How are we going to survive? Those who are not financially strong will have no choice but to close shop and relocate to a more competitive and business-friendly environment like Myanmar,” MCCMA chairman Henry Low reportedly said.

Similarly, the Malaysian Rubber Glove Manufacturers Association (Margma) said in a statement the minimum wage law had forced glovemakers to increase glove pricing by up to 7 per cent.

“The direct cost on labour will add another US$1.25 (RM3.80) per 1,000 pieces of gloves. We hope our overseas customers will be able to accept the costlier pricing,” said Margma president Lim Kwee Shyan.

Shamsuddin said if the government allows employers to factor amenities costs into the minimum wage, the money will be spent in Malaysia instead of being repatriated to the foreign workers’ home countries.

Apart from easing employers’ burden, the move will have a multiplier effect on Malaysia’s economy as it will generate higher domestic demand for house rentals, food and beverages, and public transportation, he said.

Shamsuddin noted that since April 2009, employers have been made to pay foreign workers’ levy to the government. “The government imposes foreign worker levy as a form of income tax it is entitled to collect. Since local workers pay income tax, it is only right that foreign workers do the same, too,” he said.

Separately, the Malaysian Trades Union Congress (MTUC) Sarawak Division secretary Andrew Lo, in a statement, said “the proposal to include amenities costs would encourage unscrupulous employers to continue to employ more foreign workers at huge social, security and cost to the country.” The MTUC is the umbrella body representing workers in the private sector.

Sime Darby sets benchmarks

January 24, 2013 Leave a comment
KUALA LUMPUR: SIME Darby Bhd, which saw a strong demand for its first US dollar-denominated islamic bond, has priced the US$800 million (RM2.43 billion) two-tranche sukuk at record low yields, setting new benchmarks.

The sukuk was oversubscribed by more than 10 times, with orders amounting to more than US$8 billion, said the country’s largest conglomerate.

It priced its inaugural US$400 million five-year sukuk issue at 2.053 per cent a year, and its US$400 million 10-year issue at 3.29 per cent a year.

It achieved the lowest ever coupon rate by any corporate issuer globally in the US dollar sukuk market, reflecting the strong demand for both offerings.

The transaction was closely watched as Sime Darby is the first Malaysian issuer and the first sukuk issuer globally in 2013 to tap the international US dollar debt capital markets.

The issues, which are part of a US$1.5 billion multi-currency sukuk programme that Sime Darby established earlier this month, will be listed in both Malaysia and Singapore.

“I think demand for the issues will remain strong. It’s a rare sector as most issuances are in the banking sector. Plus, demand always outstrips supply in the sukuk space,” a chief investment officer who helps manage fixed income funds told Business Times.

The sukuk programme was accorded an “A” rating by both Fitch Ratings and Standard & Poor’s Ratings Services, and “A3” by Moody’s Investors Services.

Sime Darby, which is among the top three largest plantation firms in the world, plans to use the net proceeds from the issues to finance the group’s capital expenditure, working capital requirements and general corporate purposes.

By geography, the five-year issue attracted 184 orders across Asia (83 per cent) and the Middle East/Europe, while the 10-year issue attracted 192 orders across Asia (57 per cent) and Middle East/Europe.

“We are extremely pleased with our debut issuance and the robust investor response we have received. 

“The confidence the market has placed in us is clear testament to the strength of the group, especially in the longer term,” said its president and group chief executive officer Datuk Mohd Bakke Salleh in a press release yesterday.

He said the transaction also represented the lowest ever US dollar coupon in sukuk format by an Asian issuer, and the lowest ever by a Malaysian borrower in the US dollar market, in both the five-year and 10-year tenures.

Citi, HSBC, Maybank and Standard Chartered were the banks involved in the transactions.

‘Moratorium on oil palm planting unacceptable’

January 23, 2013 Leave a comment
As calls to stop planting oil palms on peat soil resurface, lawmakers tell OOI TEE CHING that timely communication of facts and figures of peat agriculture is imperative for the good of Malaysia’s economy.

LAST week, opposition leader Datuk Seri Anwar Ibrahim outlined Pakatan Rakyat’s policy in taking care of oil palm planters’ interests, should the opposition come into power at the federal level.

In his bid to win the hearts of oil palm planters, which make up a significant vote bank, Anwar unwittingly struck a raw nerve when he lobbied Malaysia to stop planting oil palms on peat soil, pending studies on carbon emissions and sequestration.

When met at Putrajaya yesterday, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok, who is also Penampang Member of Parliament, rejected Anwar’s lobby.

“This is not acceptable. Anwar’s lobby for a moratorium seems to be echoing that of western environment non-governmental organisations’ (WENGOs) mantra,” he told Business Times after officiating at the close of “Branding of Malaysian Palm Oil” workshop yesterday.

Time and again, WENGOs like Greenpeace and Wetlands International, and their local affiliates, have claimed that oil palm planting on peatland causes tremendous pollution in the form of greenhouse gas (GHG) emission when water is drained from the soil.

These groups, however, fail to provide any credible scientific evidence to support their allegations.

“For Anwar to lobby a move that echoes the WENGOs’ shows that he is not guided by logic. How can planting oil palms be highly polluting when these trees, like any other forest species, produce oxygen for us to breathe?” he asked.

“Sarawak is Malaysia’s final frontier in oil palm planting. If Anwar is a responsible lawmaker serving the best interest of the rakyat, he should go to Sarawak and see how the oil palms, nurtured with good agricultural practices, are thriving on peatland,” Dompok said.

The minister also said GHG emission is not really an issue as Malaysia is a net carbon sink country with more than 80 per cent of tree cover provided by permanent forests and plantation crops, including oil palms, rubber, cocoa and coconuts. 

Dompok then sought tighter support from media practitioners to convey the facts and figures of sustainable practices by oil palm planters to quash baseless claims by irresponsible people who have vested interests to lobby against oil palm planting in Sarawak’s 1.6 million hectare of peatland.

In a separate telephone interview from Sarawak, Kapit Member of Parliament, Datuk Alexander Linggi, concurred with Dompok that it is of national economic interest that progress studies of sustainable peatland farming is communicated to the relevant channels and done in a timely manner so that investors understand how best to optimise what is available in Sarawak.

Linggi spoke of higher economic potential of oil palm planting compared with other cash crops. 
“Nobody criticises pineapple planting on peatland. So, why are there unfair attacks from environment activists when my people want to plant oil palms?” he asked. 

“The oil palm is an economic security crop for Sarawak and the country,” he said, in reference to Malaysia’s annual US$20 billion (RM60.8 billion) palm oil exports which support some two million jobs and livelihoods along the sprawling value chain.

Johor Bahru Member of Parliament Tan Sri Shahrir Abdul Samad, who is also chairman of the Malaysia Palm Oil Board, noted that zero burning, good water management and palm nutrition are imperative when planting oil palms in peat soil.

“The intensity of drains depends on the topography of the field and planting density but the primary objective is to keep the water levels at 50 cm to 75 cm from the surface at most times,” he said.

This is achieved through a series of stops, weirs and water-gates. Periodic flushing of the acidic and excessive storm water during the rainy season is also carried out, he added.

Shahrir highlighted that in Peninsular Malaysia, oil palms planted on peat soil by United Plantations Bhd is being carried out in an environmentally sustainable manner, even after three generations.

QSR, KFC privatisation to conclude soon

January 18, 2013 Leave a comment
This is written by my colleague Zaidi Ismail.

KUALA LUMPUR: The RM5.2 billion privatisation of KFC Holdings (M) Bhd and its parent QSR Brands Bhd will be completed on Monday, subsequently paving the way for the de-listing of both firms.

QSR Brands managing director Datuk Ahmad Zaki Zahid said KFC and QSR shareholders will be paid on January 23 and January 25, respectively. 

“The RM5.2 billion privatisation cost is being paid by Johor Corp Bhd (JCorp), the Employees Provident Fund (EPF) and CVC Capital Partners,” Ahmad Zaki told reporters here yesterday at the launch of Pizza Hut’s latest offering, the Golden Harmony Feast.

He, however, declined to comment on how much each party will get from the privatisation exercise as well as the delisting date.

UK-based CVC Capital Partners in December 2011 had teamed up with JCorp and the EPF in a massive RM5.2 billion buyout offer for KFC and QSR, which was approved by the shareholders of both listed firms.

KFC and parent QSR Brands will be taken private by Massive Equity Sdn Bhd at RM4 for each KFC share and RM6.80 for each QSR share, which also include RM1 for each KFC warrant and RM3.79 for each QSR warrant.

Massive Equity is a special-purpose vehicle owned by the companies’ ultimate parent JCorp, private equity firm CVC Capital Partners and the EPF.

JCorp and CVC made the buyout offer in December 2011 with the EPF joining in the bid later in May.

The privatisation of both companies is the largest private equity deal in Southeast Asia. Stocks of both companies have been suspended since January 4 to facilitate the capital repayment.

Ahmad Zaki said QSR Brands, which is the franchisee for Pizza Hut, plans to spend RM35 million to open 45 new Pizza Hut restaurants and upgrade 12 existing ones nationwide this year.

He said with the expansion plan, Pizza Hut will have a total of 300 branches by year-end. He also said the restaurant owner and operator is also upgrading its online order and delivery system that had started last year. It is expected to be completed and operational by the second quarter of this year.

“We hope to receive online orders up to 30 per cent of total orders from 12 per cent, at present,” said Ahmad Zaki.

Pizza Hut has allocated RM1.3 million to promote the Golden Harmony Feast, in conjunction with the Chinese New Year next month. This meal comprises a Golden Crab Claw pizza, a Golden Platter and the Fizz Golden Passion drink.

Another month of zero tax on CPO exports

January 15, 2013 Leave a comment
This is written by my colleague Sharen Kaur.

KUALA LUMPUR: THE government will maintain the current zero export tax on crude palm oil (CPO) for February as the base price is still below RM2,250 a tonne, says Plantation Industries and Commodities Minister Tan Sri Bernard Dompok.

“There will be another month of tax-free CPO if the price does not reach RM2,250 a tonne,” he told reporters here yesterday, after officiating at the opening the Palm Oil Review and Outlook Seminar 2013.

Effective January 1 2013, the export taxes on CPO are between 4.5 per cent and 8.5 per cent, down from the previous average of 23 per cent. It is being fixed on a monthly basis. 

The new tax structure is meant to facilitate refiners market cooking oil, oleochemicals, specialty fats and biodiesel at competitive prices to the global marketplace. 

On news that Indonesia, the world’s largest palm oil producer, was considering reducing export taxes too, Dompok said it was a positive strategy for the industry.

“Malaysia and Indonesia are the two biggest producers of palm oil and any move by them will have an impact on the economy and CPO prices. We will continue to engage with our counterparts in Indonesia on this.

“During a meeting in Thailand, we both agreed that there are a lot of good things that can be done through cooperation on supply management and price stabilisation,” he said.

Meanwhile, Dompok said the government is upbeat that implementation of the 10 per cent palm biodiesel blending (B10 programme) for the non-subsidised sector will help ease the current record high palm oil stock.

Last week, the Malaysian Palm Oil Board reported that the December 2012 palm oil stock had increased 2.41 per cent to 2.63 million tonnes from November.

“We expect the full implementation of the B10 programme by the end of this year. This will help ease the palm oil stock to a more comfortable level of below two million tonnes. 

“The government has spent over RM50 million to set up blending facilities and most of them would be operational by the end of this year. We expect about one million tonnes of CPO to be taken off the market,” Dompok said.

The minister is bullish on growth in the palm oil industry in the current year, citing improvements in the global economy. “I think the industry can only improve. Malaysia has more than 160 food items using palm oil. We can do better,” Dompok said.