Archive for August 2014

FGV buys Sarawak estates, upgrades biodiesel business

KUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV) is buying London-listed Asian Plantations Limited (APL) for RM628 million.

In a statement, FGV said it intends to make a voluntary conditional cash offer for all of APL ordinary shares (excluding treasury shares) at £2.20 per share. The Singapore-incorporated APL is listed on the London Stock Exchange's Alternative Investment Market. 

APL owns 24,622ha of oil palm plantations in Miri and Bintulu, Sarawak. Its 29.4% major shareholder, Keresa Plantations Sdn Bhd, is owned by Tan Sri Leonard Linggi Jugah. One of APL’s directors is Tan Sri Amar Leo Moggie, who is more well-known as chairman of Tenaga Nasional Bhd.

“FGV continues to seek opportunities to strengthen our leading position in the oil palm plantation business, through organic and inorganic growth. 

"We are attracted to APL’s high-quality estates and are confident it will bolster FGV’s lead in sustainable palm oil production,” said FGV group president and chief executive officer Mohd Emir Mavani Abdullah.

He said the acquisition complements FGV’s long-term expansion strategy to be in the world’s top 10 agribusiness players and a leader in the sectors of palm oil, rubber and sugar by 2020.

These estates are serviced by a 60 tonne-per hour palm oil mill. Incidentally the estates are near Bintulu's deepwater port, where four of the big palm oil refineries in Sarawak are located. “FGV intends to double the productivity of the mill once it completes the purchase,” Emir said.

In October 2013, FGV bought Pontian United Plantations, which has oil palm estates in Sabah and Johor, for RM1.2 billion.

With all these acquisitions, FGV becomes the world’s third-largest plantation owner of more than 450,000ha in Malaysia and Indonesia.

The group is now the largest crude palm oil producer in the world with about 18 per cent of Malaysia’s production and 7 per cent of the world’s production.

Moving up the value chain, FGV via its unit Felda Global Ventures Downstream Sdn Bhd is upgrading its biodiesel plant at Pahang with the latest technology in renewable fuel.

The joint-venture parties consist of FGV Downstream (60 per cent), M2 Capital Sdn Bhd (20 per cent), a subsidiary of Australia stock exchange-listed Mission New Energy Ltd and Benefuel International Holdings S.A.R.L (20 per cent).

The joint-venture will acquire a biodiesel plant in Kuantan Port from Mission Biofuels Sdn Bhd and carry out retrofitting on the plant so that it can operate on the Benefuel ENSEL technology with capacity of 250,000 tonnes per annum.

“Through this synergistic collaboration with our partners, there are ready market players throughout their networks in North America and Europe," Emir said. “With the new plant, our biodiesel capabilities will increase threefold, resulting in FGV becoming one of the largest exporters of biodiesel in Southeast Asia.” 

He estimated cost for the proposed joint venture, including the plant acquisition, licensing costs, purchase of catalyst, refurbishment and retrofit to amount to US$47.5 million.

PLCs embrace 'People, Planet and Profits' presentation

This is written by my colleague Muhammad Ahmad Hamdan.

KUALA LUMPUR: The government has taken a step further in realising the adoption of integrated reporting (IR) among local public-listed companies (PLCs) to better inform investors of Corporate Malaysia balancing the needs of People, Planet and Profits.

Prime Minister Datuk Seri Najib Razak said the Securities Commission (SC) is working closely with communication practitioners and the industry on the matter, which will help to publicise good business initiatives within Corporate Malaysia.

“I’m pleased to share with you that Sime Darby Bhd will be adopting IR by 2016, making it the first company in Malaysia to do so,” Najib said during his speech at the Business Leaders Dialogue Session, here, yesterday. The event was organised by the Economic Planning Unit of the Prime Minister’s Department and the SC.

IR is a new approach towards corporate reporting and provides a more comprehensive overview of organisations, helping all stakeholders — from management to investors — to make better-informed decisions. It involves publicising the company’s initiatives and commitment to the environmental, social and governance agenda, given the rising trend of socially-responsible investing.

In December 2013, the International Integrated Reporting Council launched the framework on IR to prepare PLCs for the adoption of this method of corporate reporting. More than 40 corporate leaders representing the country’s top PLCs and government-linked investment companies contributed their views to this initiative in better communicating a common practice of balancing the needs of People, Planet and Profits. 

Also present were Ministers in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar and Datuk Seri Idris Jala, Second Education Minister Datuk Seri Idris Jusoh and SC chairman Datuk Ranjit Ajit Singh.

Corporate leaders lauded the government’s call for the adoption of IR by PLCs, saying that more companies have taken serious efforts in better communicating their business practices.

Felda Global Ventures Holdings Bhd (FGV) and Telekom Malaysia Bhd (TM) said IR is an important element in corporate reporting. “FGV has taken steps to implement it. We are doing our internal harmonisation of the reporting mechanism and we should be ready by 2016,” said group president and chief executive officer Mohd Emir Mavani Abdullah. “We fully support this as it provides the shareholders with a much clearer perspective of the company and makes the company more transparent and accountable,” he added.

TM group chief executive officer and managing director Tan Sri Zamzamzairani Mohd Isa said: “For the next annual report to be published in 2015, it is encouraged that all PLCs come up with an integrated reporting and we have started doing it already”.

Ranjit said while IR will not be made a mandatory, the regulatory body will continue its efforts in encouraging all PLCs to adopt it. “As of now, there is no plan to make IR mandatory for all PLCs,” he told Business Times on the sidelines of the dialogue.

IOI Corp upbeat on Betapol

KUALA LUMPUR: IOI Corp Bhd is upbeat on the prospects of its palm oil-derived nutritional additive Betapol, which is increasingly being used to fortify infant milk powder globally, especially in China.

“Breast is best. But don’t be sad, if you can’t. Uncle Lee can help,” said its chairman Tan Sri Lee Shin Cheng in reassuring mothers of newborns, who are unable to breastfeed.

He was responding to a media query on IOI Corp’s supply of the nutritional additive to global baby milk powder manufacturers.

When breast-feeding is not always possible, infant milk powder fortified with Betapol provides the next best option, Lee told Business Times in a telephone interview.

Betapol is the first and foremost vegetable fat blend created specifically to mimic the human milk fat structure, said IOI Corp, adding that it offers the same nutritional benefits and positive health effects as breast milk.

Its studies have shown that infant formulas containing Betapol reveal better calcium absorption, rise in the babies’ bone density and softening of stools.

Infant formula is generally used from birth through 12 months, but more targeted nutritional products may be used till up to 24 months. The global market for infant formula has been growing, particularly in China, despite its one-child policy.

Lee said China’s Ministry of Health has approved Betapol as an additive in infant milk powder since 2008.

Milk powder is a sensitive matter in China after a 2008 scandal involving milk tainted with melamine that led to the deaths of at least six infants and made many thousands ill. The incident hit the reputation of local dairy firms but boosted the market share of imported brands, such as Danone SA, Nestle SA, Mead Johnson Nutrition Co and Abbott Laboratories.

In recent years, domestic milk powder makers in China, in their bid to boost the quality of their products, started incorporating Betapol into their formulation. They include Inner Mongolia Yili Industrial Group Co Ltd, China Mengniu Dairy Co Ltd, Feihe International Inc and Heilongjiang Wondersun Dairy Co Ltd.

The global human milk fat replacer market is a duopoly, of which Betapol competes with InFat. The latter is marketed by Advanced Lipids, a joint venture between Enzymotec Ltd of Israel and AarhusKarlshamn (AAK), the downstream arm of United Plantations Bhd. 

InFat is a palmitate fat that mimics the composition and properties of human milk fat. Peer reviewed research and clinical studies have also shown InFat, like Betapol, is beneficial to infant intestinal health and bone strength.

When asked if IOI Loders Croklaan has an upper hand over rival AAK in capturing China’s market, Lee said his team is committed to better serving the clients.

He said IOI Corp’s arsenal of 17 patents provide worldwide intellectual property protection for the process currently used in the company’s dedicated Betapol facilities in Malaysia and the Netherlands. 

It involves the enzymatic acidolysis of a palm stearin component with oleic acid to produce an OPO-type fat. By protecting its product ideas, IOI Corp is seen to increase its dairy customers’ chances of success with their premium offerings.

Separately, while conducting a media tour of IOI Corp’s refinery complex in Pasir Gudang, IOI Loders Croklaan Asia chief operating officer Michael van Sallandt assured milk companies security of supply.

“Our Betapol plant here in Johor is able to churn out 10,000 tonnes a year. We’re also setting up a blending facility in Xiamen, China, so as to be closer to our clients. So far, there are 25 infant milk powder brands using Betapol,” he added.

FGV beefing up CPO trading

This is written by my colleague Zaidi Isham Ismail.

KUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV) wants to ramp up its crude palm oil (CPO) trading activities to consolidate its position as the world’s largest CPO producer, as well as to boost earnings.

FGV transport, logistics, marketing and others (TLMO) cluster head Datuk Khairil Anuar Aziz said the company will set up a marketing and trading company by year-end.

“It is a numbers game out there and we want to beef up our trading activities to drive revenue. We realise that other plantation companies are doing it and we don’t want to miss the opportunity.

“In fact, we are much better as we are backed by our own assets such as CPO from our own plantations, crushing mills and refineries,” Khairil told Business Times in an interview recently.

FGV, which produces about 3.2 million tonnes, or six per cent, of the world’s global CPO a year, reorganised its operations last month into six clusters with the aim of becoming a top 10 global agribusiness player.

The six clusters are upstream, downstream, sugar, rubber, research and development, and TLMO. The reorganisation is also part of FGV’s blueprint to rake in RM100 billion worth of revenue by 2020.

Khairil said 2.3 million tonnes of FGV's output are for internal consumption, such as for its unit Delima Oil Products to make cooking oil and for its oleochemicals partner Procter & Gamble in Kuantan.

“We can only trade about one million tonnes, which is not enough to boost income. Thus, we will go into trading in a bigger way. We will buy CPO from Indonesia and other producers and market it overseas.”

He said FGV will put more effort in expanding its trade offices in Indonesia, United Arab Emirates, China and Turkey.

Tocotrienols for brain health

This is written by my colleague at Penang Bureau.

A recent study has found that Vitamin E from palm oil can help protect brain cells, writes Marina Emmanuel.

MALAYSIA’s top spot as the first country to commercialise tocotrienols has been strengthened by the findings of a two-year human clinical study carried out at Universiti Sains Malaysia (USM), which now lend promise for the preservation of brain health.

Derived from palm oil, this Vitamin E supplement, consumed long-term, has been found to protect brain cells and the nervous system as well as help minimise brain cell injuries, especially during a stroke.

The clinical study was published in the American Heart Association journal, Stroke. It is being touted as the first study to provide solid evidence of tocotrienol’s neuroprotective benefits in humans.

The clinical trial, led by USM Professor Dr Yuen Kah Hay and detailed in Stroke, shows that Vitamin E tocotrienols, derived from palm oil may support white matter health by weakening the progression of white matter lesions (WML) or oxygen-starved brain cells.

About 50 per cent of our brain is made of white matter, which provides connections to various other brain centres and is key to learning and memory.

WMLs are abnormal regions in the brain that can be detected by magnetic resonance imaging. Brain WMLs have been reportedly linked to the development of other neurodegenerative diseases, such as Alzheimer’s and Parkinson’s.

“Injury to white matter has been reported to be the major cause of functional disability in cerebrovascular disease,” said Yuen, adding that previous animal studies have reported that palm oil Vitamin E tocotrienols are capable of preventing damage to white matter during a stroke, and improving blood circulation to the damaged part of the brain after a stroke.


The trial was a randomised, double-blind, placebo-controlled study conducted by USM which followed two groups of volunteers — one with WMLs and the other with no WMLs — for two years.

One group received 200mg of mixed tocotrienols (Tocovid Suprabio) twice daily for two years, while the others were given a placebo. All volunteers were instructed to maintain their regular diets and physical activity levels.

MRIs were performed at entry into the study (baseline), and then repeated after one year and again after two years.

After two years of supplementation, the mean WML volume of the placebo group increased whereas those who received mixed palm tocotrienols remained unchanged, the study concluded.

“Tocotrienols,” noted Yuen, “have been in the market for a long time and are sold here and in the US and Europe. It is through the efforts of Malaysian companies that the world today knows of the availability of tocotrienols.”

He said that though doctors in Hong Kong have been prescribing tocotrienols to patients, there is still a need to convince local health professionals of its neuroprotective benefits.

“They remain sceptical unless we show them evidence, which is the result of tests on humans. With more studies coming out that tocotrienols are indeed neuro-protective, the effect is likely to be seen in better demand for palm Vitamin E tocotrienols while further improving the image of Malaysian palm oil,” said Yuen.

“As proven by studies carried out abroad, palm oil is healthy and just as good as olive oil, if one looks in terms of their cholesterol profile. What is needed now is to to convince consumers.

“Doctors and pharmacists can do a good job in advising their patients on palm oil since they are looked on as opinion leaders in the health field.”

Jakarta to tighten grip on plantations

JAKARTA, Indonesia (Reuters): LAWMAKERS are looking to restrict foreign ownership of plantations to no more than 30 per cent, as the country tries to maximise land usage, protect indigenous people and tighten environmental controls in the sector.

A new draft bill drawn up by members of the Parliament aims to open up the sector to smaller, local players. But it would also discourage foreign investment just after the nation has set an ambitious goal of raising its palm oil output by a third to 40 million tonnes by 2020.

Foreign ownership of Indonesian plantations is currently set at a maximum of 95 per cent. As well as simplifying Indonesia’s complex rules on land use, the new proposed law may also make it easier to prosecute businesses responsible for Southeast Asia’s annual “haze” season.

“It’s a bombshell and has snuck in under the radar, and as far as I know, without consultation with the industry,” a source said.

“There will clearly be a decline in new foreign investment. I would think there will be a decline in the capital value of plantations.”

Foreign plantation firms currently operating in Southeast Asia’s largest economy include Golden Agri-Resources and Wilmar International, Sime Darby Bhd and Cargill.

Limiting foreign ownership in palm firms to 30 per cent would hinder the flow of overseas capital needed to develop and modernise the industry, said Fadhil Hasan, executive director at the Indonesian Palm Oil Association.

The government has introduced a series of nationalistic rules for commodity exports, including palm, cocoa and mining, in an effort to boost domestic processing industries and boost the value of its exports.

The Parliament is looking to finish discussions on the draft bill with the government soon and expects it to be approved before the new administration is in place, said Gamal Nasir, director general of plantations at the agriculture ministry.

If the draft bill becomes law, it would be retroactive for companies that already own plantations, said Herman Khaeron, a lawmaker and vice-chairman of the parliamentary committee for agriculture, forestry, fisheries and maritime.

But this interpretation was rejected by agriculture ministry and industry officials.

Firms would be given five years to comply with the new bill and those that refused to comply may face fines, temporary suspensions or the revoking of licences. 

B5 biodiesel mandate delayed, again

PUTRAJAYA: Malaysia, the largest palm oil producer after Indonesia, delayed the nationwide implementation of its biodiesel mandate to the end of the year, said Datuk Seri Douglas Uggah Embas, Plantation Industries and Commodities Minister.

The B5 programme will be completed by December instead of an original target of July, doubling average monthly consumption, Uggah said in an e-mailed response to Bloomberg questions. 

The delay was because construction of 15 blending facilities in the states of Sabah and Sarawak and the federal territory of Labuan in East Malaysia were taking longer than expected, he said.

Palm, the world’s most consumed cooking oil, has declined 16 per cent in 2014 and slumped to the lowest level in a year in Kuala Lumpur today as the US government predicts record global inventories of soybeans, used to make an alternative oil. 

Prices have also been pressured by the failure of Indonesia and Malaysia to boost use in biofuels, according to Dorab Mistry, director at Godrej International Ltd, on June 26.

"We are monitoring the progress of the construction of the blending facilities and exploring ways to accelerate completion,” Uggah said. 

Full implementation of the B5 programme is expected to consume 500,000 tonnes of methyl ester annually. The country is set to produce 19.5 million tonnes of palm this year, he added.

Futures declined as much as 0.7 per cent to RM2,239 (US$700) a tonne today on the Bursa Malaysia Derivatives, the lowest level since August 12. News of the delay added to the bearish outlook for palm oil, said Chandran Sinnasamy, Kuala Lumpur-based head of trading at LT International Futures Sdn Bhd.

B5, which involves blending five per cent of palm methyl ester with 95 per cent of diesel petroleum, was completed in March in Peninsular Malaysia, Uggah said. Monthly usage will average 41,667 tonnes upon full implementation compared with 20,833 tonnes now, Uggah said. 

This will increase to 58,333 tonnes with the start of the B7 programme in the first quarter of 2015, he said, adding the Malaysian Palm Oil Board (MPOB) is in discussions with engine manufacturers and automobile associations to get warranties for B7.

Indonesia in September 2013 also boosted the amount of biodiesel blended with fuel to 10 per cent from 7.5 per cent and power plants had to blend 20 per cent from January 2014.

The country’s use of palm biodiesel in the first five months was roughly the same as in the same period a year earlier and full-year consumption will not increase, Mistry said at a conference in Mumbai in June. Domestic consumption of biodiesel is not as good as expected, Fadhil Hasan, executive director of the Palm Oil Association, told reporters on July 21.

Indonesia and Malaysia, collectively produce 86 per cent of world supply. --Bloomberg

Planters’ minimum wage headache

KUALA LUMPUR: The minimum wage policy is meant to pave the way for a higher income nation but blanket implementation of this law had resulted in higher amount of money sent out by foreign workers.

Feedback from rubber and oil palm estates showed that the higher salary payouts under the minimum wage policy have resulted in a substantial increase in remittance by foreign workers. The amount is estimated to almost double this year from 2012, before the policy was implemented.

The Minimum Wages Order 2012 took effect in January 2013 and requires employers with six employees and above to pay a minimum wage of RM900 a month in the peninsula or RM800 a month in Sabah, Sarawak and Labuan.

While lawmakers seek to propel Malaysia towards becoming a high-income nation by introducing minimum wages, the blanket implementation of the “basic rate” instead of “take-home pay” across all sectors has given foreign workers more money to send home.

In an interview with Business Times, Malayan Agricultural Producers Association (Mapa) executive director Mohamad Audong said the blanket implementation of the minimum wage policy, rising bank borrowing costs and falling palm oil and rubber prices have resulted in planters being hit from all sides.

“While there was a 20 per cent increase in basic wages, there was almost 40 per cent more money outflow from Malaysia last year. In theory, this law is supposed to help the oil palm industry become more productive. In reality, planters are badly hurt.”

He pointed out that in 2012, foreign workers in the agriculture sector remitted around RM8 billion. “After the minimum wage policy was implemented, foreign workers sent back around RM11 billion. This year, Mapa estimates the figure to surpass RM15 billion.”

Mohamad said planters are facing higher production costs due to costlier fertiliser, higher foreign worker recruitment fees and higher fuel and utility costs. There are also various fees and tax hikes.

Oil palm planters are already paying corporate tax, service tax, sales tax, windfall profit levy, crude palm oil export duty and import duties on agricultural tools and machinery. They also have to pay cess of RM13 per tonne to the Malaysian Palm Oil Board.

Mohamad said the bleak outlook is compounded by Bank Negara Malaysia’s recent rate hike, which means costlier bank loans.

Oil palm planters are also at the mercy of the world commodity markets. If palm oil prices were to drop below RM2,000 per tonne, some planters will lose money. “Many of our planters borrow money from the banks and issue bonds, of which bankers and insurance companies are subscribers.” Depending on the year of planting, Mapa calculated that palm oil production cost of these heavily-geared planters ranges between RM1,300 and RM3,000 a tonne. 

“If palm oil prices were to fall below RM2,000 a tonne, some planters may face difficulty in repaying the loans. They will then have to hire fewer workers and there will be less harvest. The minimum wage policy works best if commodity prices are on the uptrend, not when prices are falling,” he said.

As the government seeks to review the minimum wage policy at the end of this year, planters are appealing for a more judicious implementation.  “We are not opposing the minimum wage law. It would be more practical if the government amends the RM800 and RM900 per month minimum figure to that of take-home pay instead of basic rate. This will streamline the Minimum Wages Order 2012 to the main thrust of existing labour laws.”

Mapa represents about 200 plantation companies in Peninsular Malaysia with estates spanning more than one million hectares. These planters employ some 125,000 workers in the fields, of which 80 per cent are foreigners.

Meanwhile, Malaysian Palm Oil Association (MPOA) chief executive officer Datuk Makhdzir Mardan concurred that oil palm planters are enduring severe financial burden under the spectre of the taxes and new ones to be introduced. 

“For every RM1 we earn, we have to pay almost 45 sen in taxes to the federal and state governments.”

Planters are not required by law to provide accommodation, schools, clinics and places of worship but many MPOA members do so as part of their corporate social responsibility “When you factor in amenities such as housing, water, electricity, medical care, transportation, etc, it amounts to about RM450 per worker per month.”

He also said the new Property Assessment Tax of between RM5 and RM100 per hectare imposed by local authorities is painful on members.

“If the public think what is happening to oil palm plantations has no bearing on their savings, think again.” Makhdzir said when planters experience severe profit erosion, the man in the street will inevitably feel the impact. “Pension funds, such as the Employees Provident Fund, are all heavily invested with plantation companies.

He said Permodalan Nasional Bhd, the country’s biggest fund manager, and pilgrims fund board Lembaga Tabung Haji derive a big chunk of dividends from palm oil earnings. What this means is that the average Malaysian’s savings is considerably tied to the country’s palm oil sales.

If palm oil earnings shrink as a result of the “less thought out” implementation of the minimum wages law, Makhdzir said pension and unit trust funds with big stakes in plantation companies may not be able to generate as much dividend as before.