The Islamic investment bank is looking at estates in Malaysia and Indonesia, the two biggest producers of palm oil, and hopes to invest potentially hundreds of millions of dollars over the next three months, the bank’s Asian chief said on Tuesday.
Palm plantations have become a highly prized asset over the past 18 months, thanks to an 80 percent surge in the price of palm oil, which is used traditionally in food and cosmetics but has found a burgeoning new use as a bio-fuel ingredient.
"We have several opportunities in the pipeline where now due diligence is being carried out, so hopefully, God willing, within 60 to 90 days we should have some investments," said Salman Younis, who oversees the bank’s Asian operations from Malaysia.
He described the potential investments as major.
"You are looking at each transaction size of $70-$80 million," he told Reuters in an interview on the sidelines of a conference.
He said Kuwait Finance House was looking mainly at buying plantations from non-listed firms in Malaysia and Indonesia, adding that Malaysia’s big, listed companies were reluctant to sell or wanted too much money.
"The big guys don’t want to sell," he said.
This is despite signs that Malaysian planters, which dominate the industry, are willing to cash in their older estates in Indonesia for huge profits and reinvest in new estates.
Last month, Kulim (Malaysia) Bhd said it was selling its entire Indonesian plantation business for $125 million to focus on more profitable ventures elsewhere. And Boustead Holdings Bhd said it too might sell its Indonesian plantations to focus on developing estates at home.
Malaysia’s plantation index trades at about 18 times this year’s forecast earnings, above the wider market multiple of 16 times. Palm-oil prices are off last month’s all-time high but are expected by experts to hold up over the next year or so.
"We would like ideally to buy plantations…manage them and give return to our investors because it’s a long-term play," Younis said. "If we get good plantations, we can bring in a lot of money."
Kuwait Finance House was looking to help finance biofuel projects in Asia with the option of taking equity later, he said.
Biofuel made from palm oil and other vegetable oils is used increasingly in Europe and North America as a green alternative to petroleum. Biofuel producers currently rely on government subsidies to make profits, but the downstream industry is expected to become viable as vegetable oil prices stabilise.
