Siva Group, the $3-billion conglomerate, is betting big on the global edible oil market with an initial investment of $22.5 million in a new joint venture company formed with Equatorial Palm Oil plc (EPO), the AIM-listed, Liberia-focussed sustainable oil palm plantation developer. Siva Group, with diversified global operations controlled by NRI business tycoon Sivasankaran, already holds about 13% in edible oil company Ruchi Soya.
The AIM-listed EPO has signed a Memorandum of Understanding with Biopalm Energy Ltd, a wholly owned subsidiary of Siva Ventures Ltd, to form a $60-million 50:50 Joint Venture company to accelerate the development of EPO's c.169,000 hectare land position and palm oil operations in Liberia. Biopalm Energy subscribed for GBP5 million of new equity in the company in May this year.
In May 2010, Siva Group has increased its stake in Indian edible oils and soya products company Ruchi Soya to about 13% through off market and open market deals. The stake was acquired through its investment vehicles such as VS Net Ltd, Baghmar Finlease Ltd, Aiwo Ltd and Ratha Infrastructure Pvt Ltd. In March 2010, the group has acquired 10% in Ruchi Soya.
Apart from the $22.5 million cash plus arrange, Biopalm will guarantee a $30 million loan facility to the JV, while EPO will contribute $7.5 million in cash to the JV which will, on completion, hold all of EPO's current land position in Liberia. The establishment of the JV will be subject to EPO shareholder and necessary regulatory approvals.
EPO Chairman Michael Frayne said, "This funding agreement with the Siva Group is fantastic news for the company as it will significantly mitigate the financial risk attached to the project. Importantly it will allow us to focus on our strategic objectives in developing our 169,000 hectare land position which is located between leading oil palm plantation developers Sime Derby and Golden Agri, in what is emerging as a prime oil palm development region. The Siva Group has an excellent track record of working with investment partners to unlock value to the benefit of shareholders and this JV solidifies our relationship as we work together to achieve our longer term objectives.”
According to the statement, EPO has a strategic development plan to plant 50,000 hectares of oil palm plantatijion within 10 years, targeting crude palm oil ('CPO') production of 250,000 tpa increasing to 100,000 hectares planted. Initial production of CPO is planned to commence in Q4 2010 with the Company's first palm oil processing mill already under construction. It is envisaged that the additional finance will enable all operations across the three plantation areas of Palm Bay, Butaw and River Cess, as well as the active out grower programme, to be fast tracked. Investment in associated and downstream infrastructure will also be accelerated.