The consolidation trend among crop traders took an unusual
twist when rivals Noble Group and Wilmar International revealed a tie-up to
produce palm oil in Indonesia.
Noble has contributed its Indonesia-based palm oil business,
and Wilmar an unspecified contribution, into a joint venture "to develop and
operate palm projects and sell crude palm oil and its byproducts".
The company, in which Wilmar will have a 53.7% stake, will
initially focus on the 23,000 hectares of land that Noble's palm oil operation,
Noble Plantations, owns in the Papua province of Indonesia.
Papua is in the east of the Indonesian archipelago, and shares
the island of New Guinea with Papua New Guinea, where palm oil groups such as
New Britain Palm Oil and Sipef run plantations.
However, the joint venture also represents a vehicle for further
expansion, with aims to "explore and develop further palm oil opportunities in
the Papua region, to add to the existing portfolio".
The tie-up contrasts with the often bitter rivalry often
noted between trading houses, in the drive to beat competitors to crop supplies
However, both groups have fallen somewhat out of favour with
investors, with Wilmar separately on Friday unveiling a 22% drop to $1.26bn in
annual earnings, depressed by poor crush margins in China and weaker palm oil
Shares in Wilmar, which revealed a 23% drop to $87.3m in
pre-tax profits from palm oil in the October-to-December quarter, were the
worst performer in Straits Times share index last year, falling 33%.
Shares in Noble - which a year ago appointed former Goldman
Sachs banker Yusuf Alireza as chief executive, following a series of
high-profile departures and its first quarterly loss in more than a decade – have
fallen by 17% over the past year, compared with a 9.8% rise in the index.
The groups have also come under increasing scrutiny over
their investment spending since rival Olam International was attacked by short
selling fund Muddy Waters, which accused the cashews-to-cocoa group of running an
overextended balance sheet.
Mr Alireza said that Noble would be able "to benefit from"
Wilmar's expertise as a "recognised global leader in palm".
Kuok Khoon Hong, the Wilmar chairman and chief executive the
group was looking forward to continuing Noble's work "to develop a world-class,
sustainable plantation business in Papua".
Wilmar, the world's largest processor of palm oil and
largest producer of palm biodiesel, currently owns plantations in the
Kalimantan and Sumatra areas of Indonesia, besides in Malaysia, Uganda and West
The limited availability of further land in traditional palm-growing
areas has placed a premium on new areas within the narrow equatorial band
within which oil palm trees will grow, although the drop in palm oil prices to
two year lows late last year has altered many spreadsheet assumptions.
Three years on…
Wilmar reported underlying earnings for the
October-to-December period up 52% at $400.9m, boosted by recovering crush and
milling margins as agricultural commodity prices fell, and by an improvement in
sugar, thanks to a better Brazilian cane crop.
However, while the results beat market expectations, Wilmar
shares closed down 1.4% at Sing$3.63.
Shares in Noble, which reports its full year results next
week, closed up 2.2% at Sing$1.19.
Noble revealed its entry into Papua palm three years ago,
when it revealed that it "intends to develop [an] about 32,500 hectare plot of
land for palm oil production", an area bigger than that quoted in Friday's deal.
"The transaction is Noble's first project in the palm oil
sector and establishes a platform for the group to expand and increase its
investments in this area in the future," the group said at the time.