Sime ... Sept09

Second Finance Minster Datuk Ahmad Husni Mohamad has denied that the Cabinet has given the green light for a Chinese government linked company to buy into Sime Darby.

But sources say the matter was discussed and approval by the Cabinet over end Aug 2009. Sources say Sime will issue new shares for the sale to the Chinese party. However, the discussion about the sale has not reached Sime’s management level.

Sime’s current issued share capital stands at six billion, PNB is the majority shareholder, holding a 51.95% stake, while the EPF has 13.95%. Upon completion of the sale, the Chinese party will be the third largest shareholder in SIme.

It is not clear at what price the block shares will be transacted.

Existing Sime shareholders face an earnings dilution from an expanding share capital after the share sale. However, some believe the benefits of the share sale will outweigh the impact of earnings dilution.

Should the deal go through, it will enhance political ties with china, which is seen as the emerging economic powers in the world.

China is a lucrative market but it is not easy to grab a slice of it. Local knowledge and networking are vital to be able to succeed in China. Having a Chinese shareholder will probably help open doors for Sime to expand its core businesses in China, where there is still vast potential for infra development. Also China needs large amount of food and commodities, such as edible oils for its huge population.

In Aug 2009, Musa Hitam said that the group will spend Rm3 billion over the next four to five years on edible oil refineries in china. With guidance from the Chinese shareholder, especially a party linked to the government, it may be more feasible for Sime now.

In fact, Sime has already formed a JV in China to expand downstream activities. The partnership will focus on the refining, storage and sale of palm oil and fast.

Sime’s existing core business in China includes port management and water concessions in Shangdong province. The group is also the exclusive dealer for all Caterpillar products in seven provinces plus Hong Kong and Macau. It also holds BMW dealership in Southern China.

Sime’s also mentioned that the group intends to grow its recurring income. And that includes its port management and water related businesses in China.
It is not known which party from China will buy the block of Sime shares. Coincidentally, the president of China’s sovereign wealth fund CIC announced that it would increase new overseas investments in 2009 by 10 times to several tens of billons of US dollars.

The SIme share sale offer may come at the right time for CIC to consider such an investment in the Malaysia.

Being highly populated country, China has been making efforts to secure the supply of commodities, foodstuff and minerals for its consumption.