Boustead to boost Islamic REIT, eyes more

MALAYSIAN planter Boustead Holdings will boost the size of the world’s first sharia plantation real estate investment trust to RM805 million (US$221.5 million), the firm said today citing strong demand for palm oil and Islamic banking products.

Boustead’s plan to inject RM189 million of plantation assets into the REIT comes as property and palm oil markets struggle to cope with excess supply and a grim global economic outlook.

Crude palm oil prices have fallen about two-thirds from their peak of RM4,486 set in March and the industry is cautious about prospects for a modest recovery next year.

Rents of Asian properties, which were bolstered by robust demand as firms expanded, are forecast to slide next year as businesses slash costs to survive the deepening economic downturn.
Still Boustead, which is also a financial and property firm backed by the Malaysian armed forces fund, said global demand for palm oil in the food and biofuel industries would underpin the plantations sector.

“We believe that the price of CPO (crude palm oil) will improve towards the first half of next year,” Lodin Wok Kamaruddin, Boustead group managing director, told reporters.

“The present price is probably a factor of excess stocks ... and also the fact that crude oil has come down from a high of US$144 six, seven months back to only about US$40 presently.”

He said crude palm oil prices were expected to reach RM2,000-RM2,200 a tonne in the first half of 2009.

Malaysia’s benchmark February palm oil contract was last traded at RM1,524 at 0718 GMT.

Under the deal announced today, Boustead would sell two plantation estates to the Al-Hadharah REIT, bringing its asset portfolio to 16,420 hectares. Its holding in the REIT would rise to 337 million units or 60.5 per cent, from 53.4 per cent now.

The sale would be paid through cash, the issuance of consideration units and lease of the plantation assets to Boustead Plantations Berhad, a subsidiary of the Boustead group.

Boustead could inject more assets into the Al-Hadharah REIT later, Lodin said, adding that there could be plans for another REIT.

“Of late, there seems to be a strong interest in Islamic products of this nature,” he said. “So we are quite bullish on the prospects and the future of our Islamic plantation REIT.”

Malaysia’s Islamic banking market has boomed in recent years, thanks to an aggressive government push and demand from the country’s mostly Muslim population.

The global Islamic finance industry has weathered the US-led housing credit crisis relatively well, but bankers and regulators expect the sector to be hit as the economic downturn spreads.

The US$1 trillion Islamic finance sector is based on sharia, or Islamic law, and advocates ethical investing and a fair distribution of wealth. Gains must not be made from interest-related investments or activities such as gambling and alcohol.

By Reuters