DEALTALK-Markets buzz with talk of China-Sime Darby deal

* Deal may boost Sime's China businesses, open opportunities

* Could raise $1.6 bln, fund Sime's expansion

* May help China meet edible oil supply

* China President Hu in Malaysia Nov 10-11 (For more Reuters DEALTALKS, click [DEALTALK/])

By Julie Goh and Soo Ai Peng

KUALA LUMPUR, Nov 4 (Reuters) - With China's President Hu Jintao visiting Malaysia next week, speculation is swirling the Malaysian government may finally seal a deal to sell 10 percent of planter Sime Darby (SIME.KL) to a Chinese group.

Media reports that Malaysia had offered China the stake in Sime, the country's biggest palm plantation firm by land ownership, first emerged in September, but were dismissed by Prime Minister Najib Razak as pure speculation. [ID:nKLA010404]

The chatter about the agreement that could be worth about $1.6 billion, is back, with one investment bank spelling out likely implications of the possible deal.

"Sime Darby could also spin off its plantations business, with a Chinese state-owned company taking a direct stake, since there would be little strategic value in its property and car businesses," said the research report, obtained by Reuters through an investment banking source.

The source was not authorised to have the bank's name cited because the report was meant for internal use.

Sime did not reply to an email from Reuters on the market talk. Based on Sime's market value, a 10 percent stake would raise $1.6 billion.

The company's China operations accounted for 11-12 percent of its revenue and 3-4 percent of operating profit in fiscal 2008 and there is strong potential for growth given the size of China's population.

Sime shares have jumped 71 percent this year, outperforming a 42 percent rise in the broader market index .KLSE and a 57 percent gain in the plantation index .KLPL.

The Malaysian government and various state funds own almost 70 percent of Sime, the country's largest company valued at about $16 billion, and Najib has said he wants companies with close links to the government to become more efficient. [ID:nKLR467124]

WIN-WIN DEAL

China's strategic backing will enhance Sime's business in the country, where it is involved in motor and heavy equipment distribution, water treatment services, port operations, property development and palm oil sales and marketing.