Indonesia: Provident Agro to divest oil palm units ahead of moratorium

Jakarta Post 14 Jul 16;

In the wake of the government’s plan to impose a moratorium on new oil palm plantation licenses, publicly listed plantation firm Provident Agro has announced a plan to sell millions of shares in four subsidiaries for up to Rp 2.7 trillion (US$206.1 million) in an effort to provide more capital to finance its operations and future expansion.

The company, jointly owned by investment firms Saratoga Sentra Business and Provident Capital Indonesia, will sell its shares in West Kalimantan-based firms, namely Global Kalimantan Makmur (2.2 million shares), Semai Lestari (100,000 shares), Nusaraya Permai (40,000 shares) and Saban Sawit Subur (200,000 shares).

The company claimed that Central Java-based plantation firm Galanggang Maju Bersama (GMB) was ready to buy the offered shares of Global Kalimantan Makmur and Semai Lestari, worth a total of Rp 2.125 trillion based on the calculation of the indicative enterprise value. Meanwhile, another West Kalimantan-based plantation firm, Mandhala Cipta Purnama, will purchase shares of Nusaraya Permai and Saban Sawit Subur for a total of Rp 575 billion.

“The transaction plan will make the company able to provide additional operational funds, including for working capital and investment,” the company said Tuesday in its official prospectus, which also notified shareholders to attend its extraordinary general shareholders meeting in Jakarta on Aug. 18.

Provident Agro currently possesses 12 plantations in Sumatra, Kalimantan and Sulawesi and seven mills with a total capacity of 285 tons fresh fruit bunches (FFB) per hour. This year, the company aims to produce 500,000 tons of FFB and 200,000 tons of crude palm oil (CPO), an increase of 11 and 63 percent compared to last year, respectively.

In the first quarter of this year, Provident Agro recorded a 4.5 percent and 39.6 percent yoy increase in FFB and CPO production, respectively. Hence, it was followed with a 6.67 percent increase in revenues to Rp 255.27 billion compared to the same period last year. The company, however, still booked Rp 19.8 billion in net losses, down from the Rp 61.6 billion net loss it saw in the corresponding period last year.

The shares sale will reduce the company’s assets from Rp 5.5 trillion as of April to Rp 4.6 trillion. However, Provident Agro also expects to see its long-term debt decrease from Rp 2.2 trillion to Rp 1.5 trillion and its short-term debt from Rp 1 trillion to Rp 595 billion.

Provident Agro was among the major plantation companies that were allegedly responsible for the destruction of 2.61 million hectares of forest and peatlands in Sumatra and Kalimantan last year.

According to the Indonesian Forum for the Environment (Walhi), the incident resulted in the deaths of 21 people, while another 500,000 suffered from respiratory problems as a consequence of a five-month-long choking haze.

As a result, President Joko “Jokowi” Widodo recently instructed the Environment and Forestry Ministry to end the entire process for the issuance of new palm oil permits. A presidential regulation has been prepared to form the legal basis for the moratorium, which will also proscribe the existing idle concessions to be cultivated once the regulation is in place.

As the largest producer of palm oil, Indonesia has more than 11 million hectares of oil palm plantations nationwide. However, the dry weather caused by El Niño in Southeast Asia in 2015 and early this year has led to a drop in output, while the price of palm oil has declined from $1,275 per ton in 2011 to $580 per ton last June.

The anticipated moratorium will also pave the way for the government to restore up to 2 million hectares of damaged peatland as it plans to move the country away from a dependency on palm oil to other crops that are more suitable to the characteristics of peatland.

According to calculations from the Office of the Coordinating Economic Minister, the country can meet its target of producing 40 million tons of crude palm oil (CPO) by 2020 sustainably without expanding existing oil palm plantations. Indonesia’s CPO production in 2015 was estimated to be 31 million tons, up from 27 million tons in 2013. (vps)