BOUSTEAD Plantations Bhd (BPlant) is stuck with a huge tract of plantation land, acquired six years ago, that has yet to yield meaningful returns to the group, unless it forks out a huge sum for replanting. The Boustead Pertama Estates are located in Sabah’s Labuk and Sugut districts and the plantation company has yet to undertake their replanting.

According to a source close to BPlant, the Pertama Estates have yet to give good yields due to the oil palms’ age profile. When the estates were acquired in May 2018, two-thirds of the palms were in the post-peak production age profile of 10 to 20 years.

“BPlant should have replanted the Pertama Estates when they were first acquired. However, they did not, partly because it would cost too much to replant,” says a source familiar with the group.

“They waited for a better time financially, but the Pertama Estates require a lot of work. The plantation is on hilly terrain, formerly logging land. So, the access road is windy and the estate has a low tree stand per hectare.”

It is worth noting that BPlant’s fresh fruit bunch yield and oil yield per hectare have declined from 15 tonnes and 3.2 tonnes respectively in FY2020 to 13.3 tonnes and 2.9 tonnes in FY2021.

Another source says that to replant Pertama Estates — spanning a total of 11,579.31ha — the group would have to fork out a capital expenditure (capex) of about RM230 million, based on an estimated replanting cost of RM20,000 to RM25,000 per hectare.

BPlant had a gearing of 0.35 times as at Dec 31, 2021, before improving to 0.24 times as at Dec 31, 2022 (unaudited).

It is worth noting that in June last year, BPlant entered into a RM45 million green financing agreement with China Construction Bank (M) Bhd to facilitate its sustainable replanting exercise, particularly for its plantation assets in Sabah.

In fact, close to half of BPlant’s oil palms are past their prime, which means almost half of the planted areas of the group’s plantations need to be replanted. Of the total 73,453ha of planted land under BPlant, 40% is planted with oil palms past their prime, and 8% are considered old, according to BPlant’s 2021 Integrated Report. This means at least 35,257.44ha of BPlant’s plantations are in need of replanting in order to increase their yield.

This translates into capex of RM700 million to RM880 million to replant the 48% of planted areas. This does not include capex for machinery, workers’ accommodation and mill refurbishment.

“It could take BPlant RM900 million to replant its plantations,” says one of the sources.

Since the estates were acquired by BPlant, the group has seen Pertama Estates as a newly acquired property with a long gestation period. In the 2019/20 annual report, BPlant said: “The Group has acquired new properties in Sabah Region, i.e. Boustead Pertama Estates and Boustead Tawai Estates, in May 2018 and May 2019 respectively. These estates are facing low crop production due to low stand per hectare and undulating to hilly terrain condition.

“In addition, the age profile of the trees, with the majority being above 20 years, will contribute to the yield downward trend and require progressive replanting in the coming years. Inadequate harvesters and general workers have also contributed to lower crop production and disrupted field maintenance programmes.”

Then, in the 2021 Integrated Report, BPlant flags the Pertama Estates as a “strategic risk”. It says it has taken measures to mitigate the risk by providing ongoing improvement in workers’ welfare and amenities, and the introduction of mechanised operations in harvesting and crop evacuations.

The group also says that it plans to implement accelerated replanting programmes for Boustead Tawai 1 and 2, both in the Labuk and Sugut districts as well, located near the Pertama Estates.

However, there was no mention of replanting the Pertama Estates. Considering the low crop production of the Pertama Estates, there is a likelihood that BPlant may even dispose of the estates.

In the 2021 Integrated Report, BPlant says it has begun the process of rebalancing its asset portfolio, which includes disposing of low-yield estates and acquiring estates with oil palms in their prime.

“Our objective is to optimise our cash flow in order to pare down our borrowings and meet our working capital requirements, strengthening our balance sheet for future growth via the acquisition of new plantations and generation of new income streams,” it says.

In January 2022, BPlant completed the disposal of the Kulai Young Estate to SIPP Power Sdn Bhd for RM429 million. The net proceeds after the Real Property Gains Tax from the sale of RM389 million were allocated to repaying bank borrowings, according to BPlant in the Integrated Report.

Questions sent to BPlant remained unanswered at press time.

Ironically, back in 2019, several months after the estates were acquired by BPlant, the group touted that the prospects for Pertama Estates were “clearly promising”.

To recap, BPlant signed a sale and purchase agreement with Dutaland Bhd back in October 2017 for the acquisition of 42 parcels of leasehold plantation land in the Labuk and Sugut districts in Sabah for RM750 million.

Combined, the tracts measure 11,579.31ha — 86.35% were planted with oil palms, of which 64.01% were in their prime mature age — translating into RM64,770 per hectare.

The group said the market value of the plantation assets was RM760 million.

According to BPlant then, the purchase consideration was derived on a “willing buyer, willing seller” basis.

When the acquisition was completed in May 2018, the Pertama Estates (Boustead Pertama and Boustead Sapa Payau Estates, Boustead Sungai Lokan and Boustead Lokan Baru Estates and Boustead Ruku Ruku Estate) constituted 12.4% of BPlant’s total plantation land bank.

Boustead Holdings Bhd is the largest shareholder of BPlant with a 57.42% stake, while Lembaga Tabung Angkatan Tentera (LTAT), Boustead’s largest shareholder, holds a direct 10.59% stake in the plantations group.

LTAT has made a voluntary takeover offer for a 40.58% stake or 822.51 million shares in Boustead, at 85.5 sen per share. The armed forces retirement fund is expected to fork out a total of RM703.2 million to take Boustead private.