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Nikkei Markets

Sime Darby Plantation sells Liberia operations

Analysts said sale of loss-making unit to help bolster company's financials

Sime Darby Plantation had signed a 63-year concession agreement with Liberian government in 2009 to develop 220,000 hectares into oil palm and rubber plantations   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's Sime Darby Plantation, the world's largest palm oil producer by acreage, said Thursday it has sold Liberia operation for a token $1 plus an earn-out payment.

The earn-out payment will be determined by the average future crude palm oil price and future CPO output from the unit, the company informed the stock exchange. Payment from the buyer Mano Palm Oil Industries, a local Liberian company, will be made quarterly over eight years starting April 2023.

"SDP (Sime Darby Plantation) will continue to serve its business-to-business and business-to-customer multinational customers in Africa," the company said.

The deal marked the end of Sime Darby Plantation's venture that has been loss-making since its inception and worsened by a 2017-2018 slump in palm oil prices. The company explored sale of Liberia operations last year as part of its monetization program.

Apart from weak prices, Sime Darby Plantations' Liberia operations also grappled with high cost, lower- than-expected yields due to extreme dry weather conditions, and disruption caused by outbreak of diseases from time-to-time.

Sime Darby Plantation had signed a 63-year concession agreement with Liberian government in 2009 to develop 220,000 hectares in northwest Liberia into oil palm and rubber plantations. The company however had planted only over 10,300 hectares due to various challenges.

Analysts said the sale, along with proceeds from disposal of other non-core assets, will allow Sime Darby Plantation to improve its financial health, trim some of its borrowings, and invest in other projects.

"It's good for them as they no longer need to consolidate losses from the business," said CIMB Investment Bank Analyst Ivy Ng.

Net profit slumped 75% in the quarter ended September following impairment charges totaling 256 million ringgit from the Liberian operations. In addition, the company also planned to exit joint ventures in biomass and oleochemical, while it sharpened focus in the downstream segment.

"This divestment will enable us to prevent further losses in our books and reallocate our financial resources into areas where they will create the highest value for the group and its shareholders," Managing Director Mohamad Helmy Othman Basha said in a statement.

Sime Darby Plantation currently owns more than 620,000 hectares in Malaysia and Indonesia. Apart from Liberia, the company also has 140,000 hectares in land bank in Papua New Guinea and in the Solomon Islands.

Prices of the edible oil used in everything from snacks to cosmetics have surged nearly 44% in 2019, mostly gaining through the final months of the year amid depleting stockpile as production declined and demand rose.

Shares of Sime Darby Plantation ended flat at 5.30 ringgit apiece, while the benchmark FTSE Bursa Malaysia KLCI was 0.2% higher.

-- Gho Chee Yuan and Yimie Yong

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