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February 6, 2009

Malaysia's Sime plans water project, rice venture

Malaysia's Sime Darby, the world's largest palm producer in terms of estates owned, plans to invest up to $360 million on a groundwater project and venture into rice farming, the Star newspaper reported on Friday.

With palm prices plummeting nearly 60 percent from a peak of 4,486 ringgit hit last year, Sime Darby appears to be looking for ways shore up its income with these projects, reported Reuters.

Sime's Chief Executive Ahmad Zubir Murshid said the firm was seeking a 30-year concession to drill wells to channel groundwater from Malaysia's northern state of Perak to densely populated central Selangor state.

"We have to negotiate the offtake agreement. We also have to get the various approvals from the state and federal authorities," Ahmad Zubir was quoted as telling a news conference for domestic journalists.

He added that the ballpark figure for the cost of drilling, piping and a water treatment plant for the first phase ranged from $332.2 million to $359.9 million.

AmInvestment Bank said it was too early to assess the potential financial impact of the projects on Sime, Malaysia's biggest listed company.

"We are not too excited about this development as this is not part of the conglomerate's core business activities," analyst Fiona Leong said in a note.

"But we are retaining our "buy" recommendation on Sime...on our belief that the stronger crude palm oil prices -- although not likely to reach the high of 4,486 ringgit per tonne seen in March 2008 -- would trigger a re-rating of the stock."

Sime Darby, which also owns property and automobile businesses, is looking to diversify further by planting up to 25 percent of its acreage with other crops such as rice padi and rubber amid the slump in palm oil prices.

The conglomerate holds some 560,000 hectares of plantation land in Malaysia and Indonesia.

"Padi is commercially viable if it is done properly. It has to be mechanised and it has to use high yield breeds," Ahmad Zubir said.

Sime Darby will work on 7,000 hectares in eastern Sarawak state on Borneo island for rice cultivation and there have been preliminary discussions with neighbouring Sabah state.

Malaysia, among the top ten rice importers in the world, consumes 2.2 million tonnes annually, of which 30 percent in shipped in from neighbours Thailand and Vietnam, and wants to avoid the hefty bills incurred last year when rice prices soared.

The Southeast Asian country is aiming for 86 percent self-sufficiency in rice by 2010.

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