Initial Risk Analysis: Golden Plantation Tbk.
December 11, 2014
From 15 to 17 December 2014, plantation company Golden Plantation Tbk. is making an Initial Public Offering (IPO) on the Indonesian Stock Exchange (IDX), with the aim of raising around IDR 230 billion (USD 15.2 million). The company is currently a full subsidiary of the Indonesian-listed food company PT Tiga Pilar Sejahtera Food Tbk (TPSF), which will still own 78% of the shares after the IPO. This Initial Risk Analysis provides an initial analysis of potential financial, sustainability and governance risks associated with PT Golden Plantation. It is meant to inform investors participating in the IPO, as well as shareholders of the American commodity trader Bunge and investors who have committed funds to the American private equity group KKR – which currently have a stake in PT Golden Plantations.
From 15 to 17 December 2014, plantation company PT Golden Plantation is making an Initial Public Offering (IPO) on the Indonesian Stock Exchange (IDX), with the aim of raising around IDR 230 billion (USD 15.2 million). The company is currently a full subsidiary of the Indonesian-listed food company PT Tiga Pilar Sejahtera Food Tbk (TPSF), which will still own 78% of the shares after the IPO.
This report provides an initial analysis of potential financial, sustainability and governance risks associated with PT Golden Plantation. It is meant to inform investors participating in the IPO, as well as shareholders of the American commodity trader Bunge and investors who have committed funds to the American private equity group KKR – which currently have a stake in PT Golden Plantations.
PT Golden Plantation controls 7 plantation companies in South Kalimantan, Central Kalimantan, West Kalimantan, Riau, Jambi and South Sumatra. The company reports a land bank of 49,000 hectares, of which 17,000 hectares are planted. It produced 64,000 tons of fresh fruit bunches in 2013 and operates one crude palm oil (CPO) mill in South Kalimantan.
This Initial Risk Analysis finds that the company has not secured adequate plantation permits for a large part (26,000 ha) of its claimed land bank. Also, this report finds several sustainability risks – forest fires, peatland development, conflicts with local communities and the occupation of forestlands – tied to the company’s different plantation holdings.
PT Golden Plantation intends to use proceeds from the IPO to acquire two palm oil plantation companies in South Sumatra and Jambi, as well as for working capital and capital expenditures. Further details on the future strategy of the company are not available. However, this report shows that the company faces various challenges:
- The company’s growth in the past few years was financed with short-term debt, meaning that its
liquidity is poor and will stay insufficient;
- The company’s profitability is under-performing and could further deteriorate after the planned acquisitions;
- The net debt to EBITDA coverage ratio is well above the level set in the covenant of the loan facility agreed with a group of banks, making it hardly possible to attract more debt;
- To restore profitability, the company needs to develop plantations. However, the company has no full permits yet for a large part of its claimed land bank, and over the past three years has planted only 1,500 ha per year;
- The company intends to invest in more CPO mills, but it is not clear how it will finance these new mills as it has a low cash flow and will have trouble attracting new bank loans. A potential alternative could be to issue more shares, but this would imply dilution to the investors buying shares during the IPO.
PT Golden Plantation’s management has not been transparent about it how it plans to deal with these issues. This poses a high financial risk to investors considering buying shares during the IPO.
Another potential option, suggested by TPSF’s finance director, could be that the American private equity group KKR and the American commodity trader Bunge together take control of PT Golden Plantation after the IPO by buying TPSF’s shares. KKR now owns a 25% stake in TPSF and Bunge has a 35% stake in PT Bumiraya Investindo, the subsidiary of PT Golden Plantation that controls its plantations.
KKR and Bunge could be expected to pursue a strong and rapid expansion of PT Golden Plantation’s plantations. But PT Golden Plantation does not have sufficient sustainability policies in place, nor has it disclosed sufficient information on the sustainability risks associated with its current plantation holdings. In addition, when the company begins acquiring new assets, Bunge’s shareholders and KKR’s investors are likely to be exposed to other sustainability risks embedded in the acquisition targets. These risks could be at odds with Bunge’s “No Deforestation, No Peat, No Exploitation” policy announced in October 2014.
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