Monday, 12 November 2007

Indonesia to Set Up Holding Company for Estates, May Sell Stock

Indonesia to Set Up Holding Company for Estates, May Sell Stock
By Haslinda Amin and Arijit Ghosh

Nov. 12 (Bloomberg) -- Indonesia, the world's largest palm oil producer, plans to set up a holding company for its 14 state-owned plantation owners, a proposal that may precede a share sale within two years.

The Southeast Asian nation will consolidate the palm oil, coffee and rubber estate companies, known as PT Perkebunan Nusantara I to XIV, by the year's end, State-Owned Enterprises Minister Sofyan Djalil said in an interview in Jakarta.

The holding company will have a single board and may help the government pare costs and take greater advantage of surging prices of palm oil, rubber and coffee. Malaysia's Synergy Drive Bhd., created to buy that nation's state-backed palm oil growers and boost efficiency, is set to start trading this month.

``In terms of financial strength, a large entity can better turn to the financial markets and not just rely on bank loans for expansion and diversification,'' said Derom Bangun, the head of the Indonesian Palm Oil Association.

Indonesia's government in 2005 owned 962,055 hectares (2.4 million acres) of plantations, and produced 2.5 million metric tons of palm oil, rubber and five other farm products. The country, Southeast Asia's largest economy, straddles the equator and is a major producer of tropical commodities. Neighboring Malaysia is the world's second-largest palm oil grower.

Mining Companies
Indonesia has been reorganizing companies in which it holds stakes, and selling shares in some to boost efficiency and help to plug a budget deficit. The government is also considering the creation of a holding company for state-linked mining companies, Djalil said in the Nov. 5 interview.

Malaysia's Synergy Drive, set to be the world's largest oil palm grower after buying companies including Sime Darby Bhd., will start trading in Kuala Lumpur on Nov. 30. The group will have a stock market value of more than 50 billion ringgit ($15 billion), Synergy said last month. potentially making it the country's largest listed company, surpassing Malayan Banking Bhd.

To be sure, the Indonesian holding company may encounter difficulties as the 14 estate units ``have complex problems,'' according to Bustanul Arifin, an analyst at the Institute for Development of Economics and Finance in Jakarta.

``The idea is okay for efficiency but it won't be easy to implement,'' said Arifin. ``It would be better to set up several holding companies based on the commodity.''

Palm oil futures in Malaysia touched a record 3,013 ringgit ($903) a metric ton on Nov. 9, and have gained 79 percent over the past 12 months. Bangun, the head of the palm oil association, said Nov. 8 that the price may rise as high as $1,000 a ton next year on increased demand and a shortfall in vegetable oil supplies.

`Aggressively Expanding'
Indonesia ``has been aggressively expanding its oil palm cultivation in the past 10 years,'' Credit Suisse Group analysts led by Andrew Garthwaite said in a report on rising agricultural prices dated Nov. 6. ``Food-price inflation is likely to remain elevated over the next three to five years.''

China and India, the biggest vegetable oil buyers, import palm oil to fill shortages in supplies of soybean, groundnut and canola oils. China purchased 3.9 million tons of palm oil from January to September, 1 percent more than a year earlier, while India imported 2.62 million tons, up 32 percent from a year ago.

Palm oil prices have also been boosted by a surge in crude oil to a record as the commodity can be used to make biodiesel.

``The crude palm oil price remains robust, supported by an exciting palm oil demand outlook coupled with strong price of grains and competing oil,'' Rachman Koeswanto, an analyst with Deutsche Bank AG, said in a note on Oct. 24. ``The growing demand from China, India and to a lesser extent the U.S. has been the main driving force.''

Shares of PT Astra Agro Lestari, Indonesia's biggest publicly traded agricultural company, have risen 87 percent this year. The Jakarta-based company tripled profit in the third quarter on higher palm oil prices.

Rubber futures in Tokyo have gained 35 percent over the past year and traded at 279 yen ($2.52) a kilogram at 10:57 a.m. in Tokyo. The commodity is used to make car tires. London futures for robusta coffee, which accounts for about 85 percent of Indonesia's crop, have gained 49 percent over the past year.