Assessing timber firms

Minister of Forestry Djamaludin Suryohadikusumo has finally ended what securities analysts saw as his tug of war with timber companies intending to go public. He announced last week that wood-based companies which want to make an initial public offering (IPO) of shares are no longer required to obtain a letter of recommendation from his office.

The easing of the requirement will not, however, make things much easier for timber firms to list their shares on the stock exchanges. Neither will the new policy relax Djamaludin's control of the management of forest concessions.

The objective of the previously required recommendation -- to ensure that the forest concessions are managed in a sustainable manner to guarantee an adequate supply of wood -- is now the responsibility of independent inspection companies.

Under the new system, timber companies planning IPOs will be subject to two processes. First, their forest concessions will have to be assessed by Geneva-based Societe Generale de Surveillance Forestry and Certification (SGS Forestry) and the results of the inspection submitted to the Capital Market Supervisory Agency (Bapepam) and announced to the public. Then, like all other companies intending to go public, the timber firms also will have their business and financial performance assessed by their underwriters, securities analysts and Bapepam.

The ministry's selection of SGS Forestry as the only independent company now fully qualified to conduct the inspection job implies that the World Bank-funded pilot project for forest- concession inspection undertaken by the joint venture of Canada's Reid Collins and Bimantara's subsidiary -- PT Citra Teknik Nasional Sejati -- has failed.

It is regrettable that although the country holds the world's second largest forest resources there is not a single local company already qualified to conduct a professional inspection of forest concessions.

But judging from the reputation the Swiss company has built up in the process of transferring skills and technology to the Indonesian customs and excise duty directorate general and PT Surveyor Indonesia and PT Sucofindo, we are confident that SGS Forestry, which has experience in certifying forest management in more than 40 countries, will be able to do the inspection job in a joint venture with a local partner.

The business opportunity created by the ministry's ruling will hopefully attract private investors to develop professional inspection and certification services for forest concessions. It would be even better if the ruling would eventually be imposed indiscriminately on all timber companies.

The compulsory inspection obviously will make the costs of share listings for timber companies much higher than for other companies, but since the objective is to ensure sustainable management of forest resources the additional costs are justified. That objective also is for the good of the investing public because the business viability of a timber company depends on the availability of wood input.

We think the new system is much better than the previous ruling because the new assessment process is to be carried out by an independent inspection company with a high-level international reputation.

The more clear-cut ruling will expedite new IPOs by more timber companies. There are now three timber companies planning to launch IPOs, including PT Artika Optima Inti, whose IPO has been held up since June due to the absence of a letter of recommendation from the forestry minister.

We think that the more timber companies are listing shares on the stock exchanges, the better will it be for the public interests and for the supervision of forest concessions. Because listed companies will have to fulfill the disclosure requirement of Bapepam, thereby putting them under more stringent public scrutiny.