TH Plantations and PT Synergy Oil Nusantara: Leakage Risks At Plantation and Refinery

Lembaga Tabung Haji is a Malaysian Islamic financial institution, with over USD 16 billion in assets under management. TH Plantations (THP) is Lembaga Tabung Haji’s publicly traded palm oil arm, with 32 palm oil plantations in Malaysia and Indonesia. It has a total landbank of 102,000 ha, of which 61,104 ha is planted. The company is also a joint venture partner in PT Synergy Oil Nusantara (PT SON), a large palm oil refinery at the port of Batam, Riau, Indonesia. This facility has a capacity of 1 million tons per year. It is one of the largest ‘leakage’ refineries in SE Asia.

Key Findings

  • THP actively cleared peatland and forests at its PT Persada Kencana Prima (PKP) and Hydroflow plantations in 2017. At PT PKP, it cleared 488 ha in 2017, with 6,420 ha remaining peat and forests. A moratorium on new land clearings has been in place at PT PKP since June 2017. It also cleared 171 ha of peatland at Hydroflow Sdn Bhd in 2017, with 770 ha of forest remaining.
  • THP’s clearings constitute violations of the No Deforestation, No Peat, No Exploitation (NDPE) policies of some of its buyers, which has already led to suspension by IOI and engagement by Wilmar. IOI accounted for the purchase of nine percent of THP’s 2016 CPO production. Wilmar’s engagement has successfully halted new clearings at PT PKP. No new deforestation has taken place since the issuance of this moratorium. THP also features on the supplier lists of AAK, ADM, Musim Mas, Olam, Nestlé and Unilever and its stranded land equals 7,190 ha.
  • Lembaga Tabung Haji is also active in midstream operations through its joint venture refinery PT Synergy Oil Nusantara (PT SON). PT SON has faced public criticism for being a replacement buyer for both Sawit Sumbermas Sarana (SSMS) and Austindo Nusantara Jaya (ANJ) after both companies were suspended by other traders for NDPE violations. Felda Global Ventures, its PT SON joint venture partner who has an NDPE policy, faces the most apparent reputational risks.
  • The sustainability-related value-at-risk could be equal to 43 percent of THP’s equity value due to loss of customers and loss of Indonesian concessions. Circa 20% of THP revenues are generated by NDPE customers, resulting in a value-at-risk equal to 28 percent of market capitalization. The regulatory risks related to the Indonesian Peat Moratorium ranges between USD 4.4 to 31 million, or 2-14 percent of equity value.
  • Future compliance with NDPE standards, would lead to value losses that equal 19 percent of THP’s market cap. These losses mainly consist of stranded assets because of the Indonesian Peat Moratorium, and the costs to restore already developed peatland.
  • In the five years’ period 2013-2018, THP share price has underperformed all benchmarks by more than 50%. Any further deforestation, potential stranded assets and regulatory risks might lead to major risks for all financiers.

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