Guthrie 'manages' plantation firms

Guthrie 'manages' plantation firms

KUALA LUMPUR (Dow Jones): The top official at Malaysian plantation concern Kumpulan Guthrie Bhd. confirms that Indonesia's government is reviewing the company's acquisition of oil palm estates in that country, but insists it won't hurt the takeover.

Guthrie's Group Chief Executive Abdul Khalid Ibrahim said the company had already assumed management control of the Indonesian plantation companies on March 31, and is now working with the seller on a due diligence exercise.

"Yes, we've been told (of the review). It's a review of process, how the thing (the sale) has been conducted. That's all. It's just like an audit," Khalid told Dow Jones Newswires, in his first remarks on the matter since Guthrie closed the deal last month with the Indonesian Bank Restructuring Agency, or IBRA.

Conflicting statements from Indonesian government officials after that have cast doubts over the status of the deal, which gives Guthrie control over around 200,000 hectares of oil palm estates in Indonesia.

Guthrie paid $368 million for the 25 oil palm plantation concerns formerly owned by the Salim Group. IBRA took over the companies from Salim Group after the financial crisis that struck the region in late 1997, hitting Indonesia particularly hard.

Other Malaysian plantation companies view the Guthrie acquisition as a test case and are closely watching to see how the deal pans out amid growing political uncertainty in Indonesia.

Analysts say looking at Indonesia is the right strategy for Guthrie, as plantation land becomes more scarce in Malaysia, and is also a way to cut palm oil production costs. However, others believe the deal may yet be scuppered even at this stage - and that has weighed on Guthrie's stock price.

Indonesia's Vice President Megawati Sukarnoputri reportedly said recently the deal wasn't final and wanted it to be reviewed.

Finance Minister Prijadi Praptosuhardjo later said the deal was final, but that Indonesia wanted Guthrie's commitment on community development to assist the people living around the plantation areas.

Guthrie CEO Khalid said the review was being done to satisfy Indonesia that the sale process was done properly. "It is good for Indonesia and it's good for Guthrie...The review doesn't mean anything to the arrangement (the sale)," he added.

"In fact starting from March 31, the whole program is already in the hands of Guthrie," Khalid added.

Khalid is confident Guthrie won't lose the oil palm estates, even if there are changes in Indonesia's political leadership.

"No, it will not happen. I don't think Guthrie will lose if it (the review) is conducted in a proper manner." And if the Indonesian government goes back on its word on the deal, it will have to compensate Guthrie, Khalid noted.

Guthrie succeeded in its bid to buy the Indonesian plantation companies late last year and signed the preliminary agreement in November with IBRA.

But the deal became mired in controversy due to opposition from some Indonesian legislators and plantation companies who worried that Guthrie would become a major player in Indonesia's crude palm oil (CPO) industry.

Indonesia is the second-largest producer of CPO in the world, after Malaysia.

Opposition to the deal also centered on land ownership rules.

In Guthrie's case, the Indonesian government's failure to set down clear guidelines for investment added to the lack of clarity over the issue.

The Indonesian government currently sets a limit of 20,000 hectares in one province and 100,000 hectares countrywide, for a single plantation company. Although IBRA signed an agreement to sell the plantations to Guthrie, the 25 plantations under the deal far exceed the limit.

According to sources at IBRA, unidentified local businessman have objected to Guthrie's purchase of the plantations from Salim, saying they already own the land. Such confusion in a country where legal land ownership is hard to prove is a major headache for deals of this magnitude.

Khalid said the deal was signed in good faith, and IBRA had cleared the details with the Indonesian government before agreeing to the sale.

Khalid said Guthrie will work with PT Holdiko Perkasa - the IBRA-controlled seller of the plantations - for six months on a due diligence exercise.

He said Guthrie wanted all the assets accounted for properly. That includes getting back $50 million in cash collateral pledged by PT Indofood Sukses Makmur, which owned stakes in the plantation companies, to an Indonesian bank.