Chain Reaction Research conducted a new analysis identifying serious undisclosed risks associated with the scheduled December 12 Initial Public Offering of the palm oil company PT Sawit Subermas Sarana (SSMS) on the Jakarta Stock Exchange.
The analysis found:
- An estimated 95% of the company’s land bank is contested, compared to just 23% reported in the prospectus
- Illegal Deforestation: The company cleared approximately 10,784 hectares of forest from 2003-2012. Most appears to have been cleared without central government authorization, in violation of the 1999 Forestry Act.
- A significant part of the company’s land bank overlaps with actual or potential orangutan habitat, meaning it may not be eligible for development.
- SSMS is dependent on just two buyers both of whom have sustainable sourcing policies that prohibit clearance of forest and High Conservation Value (HCV land) of the type at risk in the SSMS case.
- In an unusual development, the Bahasa Indonesia version of the prospectus disclosed significantly more information than the English version – but both versions are missing key information.
- Bank Mandiri is strongly exposed as a lender to SSMS – and at the same time is involved in underwriting the shares. Part of the IPO proceeds will be used to repay the debt to Bank Mandiri, creating a clear conflict of interest.
- Even after the IPO, the company will continue to be dominated by a single family, raising risks that the company may not be managed in the interest of minority shareholders.
Much more information is contained in the analysis. As a result of these concerns, the analysis gives SSMS an “Avoid” rating.
Initial Risk Analysis: Sawit Sumbermas Sarana Tbk.
December 9, 2013
Chain Reaction Research conducted this Initial Risk Analysis identifying serious undisclosed risks associated with the scheduled December 12 Initial Public Offering of the palm oil company Sawit Subermas Sarana Tbk. on the Jakarta Stock Exchange.
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