IFC lends $26m to local palm oil companies

The Jakarta Post, Jakarta

The International Finance Corporation (IFC), the investment arm of the World Bank, has agreed to provide US$26 million in loans to two Indonesian palm oil plantation companies.

The IFC, in a statement released Friday, said $14 million would be lent to Verdaine Investment Limited and $12 million to PT Sahabat Mewah Makmur, a 12,000-hectare oil palm plantation acquired by Verdaine in February 2003.

Verdaine was created in June 2000 with $100 million in committed equity from Austindo Nusantara Jaya, Olympus Capital Holdings Asia and JP Morgan Partners Asia. Verdaine aims to acquire, rehabilitate and manage 40,000 to 50,000 hectares of palm oil plantations.

Verdaine's primary acquisition targets are plantations in Indonesia with potential for strong cash flow and further growth prospects if rehabilitated.

"IFC believes that the fundamentals of the palm oil industry in Indonesia are sound. In these transactions we are able to work with a strong and reliable operator to facilitate its growth across Indonesia," said Jean-Paul Pinard, IFC director of agribusiness in the release.

Verdaine director Kelly Knight said that IFC was the right partner for Verdaine because they both were committed to good corporate governance, sustainable development and the creation of employment.

"The palm oil business is one of Indonesia's most important generators of employment and dollar export earnings," she said.

"It is a business where Indonesia has strong competitive advantage but where there is a great need for improvement in corporate governance."

Indonesia exported $1.97 billion worth of palm oil and kernels last year, the country's second-largest export commodity after exports of pulp and paper, according to government statistics.

Indonesia's production of crude palm oil may increase 6.5 percent to 9.6 million tons this year, compared with 9 million tons the year before, the country's Palm Oil Producers Association said in January. Palm oil exports may increase 9 percent this year to 6.1 million as output rises, the association said.

IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses.

From its founding in 1956 through financial year 2002, IFC has committed more than $34 billion of its own funds and arranged $21 billion in syndications for 2,825 companies in 140 developing countries.