KUALA LUMPUR/SINGAPORE (Dec 13, 2011): Malaysia’s Federal Land Development Authority (FELDA), the state-run plantation operator, is discussing a strategic alliance with five global trading houses, including Archer Daniels Midlands Co, Bunge Ltd and Cargill Ltd, two sources with direct knowledge of the deal told Reuters on Tuesday.
These trading firms are eyeing a foothold in the expanding US$40 billion palm oil industry dominated by Singapore’s Wilmar International, the largest listed palm oil firm with an empire of estates and refineries stretching from Indonesia to China.
FELDA, which oversees more than 800,000 hectares (1.9 million acres) of estates in Southeast Asia and accounts for 8 percent of global palm oil output, is keen to tap into that growing interest as it seeks to widen market access and monetise its assets.
The two sources say the strategic tie-up, likely by February, is also expected to shore up investor interest ahead
of FELDA’s US$2 billion listing of its agri-business arm FELDA Global by mid-2012, turning it into a trading powerhouse dealing in palm oil and rubber.
“FELDA is talking to the top five trading houses in the world for this strategic alliance and they hope to make an
announcement by February,” said a source in Malaysia who declined to be identified because the deal talks were ongoing.
“The alliance will give FELDA’s palm oil and rubber products access to the big clients these trading houses represent. They (FELDA) are going even more global, although if the terms are not good, there is the option of opting out,” he added.
Officials with Archer Daniels Midlands, Bunge and Cargill could not be reached for comment outside of normal US business hours.
Morgan Stanley is playing an advisory role in the talks, two sources with knowledge of the deal said. A Morgan
Stanley spokesman in Hong Kong declined to comment.
STAKE IN FELDA GLOBAL UNLIKELY
A Singapore-based source with knowledge of the talks said it was unlikely that the appointed trading house would take a stake when FELDA Global lists in the first half of 2012 in Kuala Lumpur, the third-largest IPO in the Southeast Asian country.
The listing has attracted criticism that it would sideline FELDA smallholders who own half a million hectares that the firm oversees and also represent a key vote bank for Prime Minister Najib Razak in widely expected elections next year.
“FELDA is aware of the political repercussions if a foreign trading house comes in, so they want to keep this as a strategic alliance and ensure that FELDA settlers’ interests and lands are protected,” the Malaysian source said.
FELDA Global’s listing is part of the authority’s plan to monetise its assets after it earlier floated its sugar arm, MSM
Malaysia Holdings Bhd. It also plans to inject 300,000 hectares of its own estates into the latest offering.
Morgan Stanley is acting as a joint global coordinator with CIMB Investment Bank and Maybank Investment Bank for FELDA Global’s IPO.
JP Morgan and Deutsche Bank are joint bookrunners, sources have told Reuters earlier.
The success of FELDA Global’s listing and any tie-up with a big trading house runs in synch with Prime Minister Najib’s drive to create firms that are regional champions and attract foreign investors to the local bourse.
TRADERS GETTING SQUEEZED
Analysts said the possible tie-up suggests global trading houses are going all out to secure marketing rights for palm oil, which has annual output of about 47 million tonnes.
Most edible oil comes from Indonesia and Malaysia.
“Nowadays, the buyers of crude palm oil and refined vegetable oil can go to straight to the producers, which have
consolidated their positions,” said Andreas Bokkenheuser, a UBS equity analyst in Singapore who covers mining and commodities.
“That’s sort of squeezing traders out of the supply chain, so definitely we are going to see more of these traders moving upstream to secure marketing rights,” he added.
The big trading houses are coming up against palm oil firms like Wilmar, Malaysia-listed IOI Corp and Indonesia’s
SMART Tbk that enjoy economies of scale with massive holdings in estates, refineries and logistics.
For Cargill, Bunge and Archer Daniel Midlands, expanding into the palm oil business via FELDA becomes attractive as these agribusiness firms have posted weaker-than-expected profits in last quarter due to poor oilseed margins and soaring corn prices.
“If any of these companies tie up with FELDA, things are going to heat up for the palm oil market and there will be an aggressive margins game coming into play,” said a palm oil trader at commodities brokerage.
“It’s about time, actually.” – Reuters