Indofood expects stronger CPO exports

JAKARTA (JP): Giant publicly listed food producer PT Indofood Sukses Makmur said on Friday it aimed to expand its crude palm oil (CPO) export market through its recent acquisition of Singapore listed Golden Agri Resources, a unit of the Sinar Mas Group's Asia Food Property (AFP).

Indofood president Eva Riyanti Hutapea predicted Golden Agri's strong CPO output could double Indofood's export revenue, which last year stood at US$210 million.

"Because of the deal, our export revenue doubled instantly," she told reporters at her office.

On Thursday, Indofood announced its deal with Golden Agri to purchase the latter's stake of up to 55 percent for a value of around $173 million.

Under the deal, Indofood's wholly owned subsidiary, Witty East Holdings Limited, will initially acquire a 30 percent stake in Golden Agri for $97.6 million.

Through a call option agreement, Witty East may later raise its stake to between 50 and 55 percent through an open market tender offer.

The acquisition, Eva said, could push Indofood's total CPO output this year from an estimated 300,000 metric tons to around 1.3 million tons.

Golden Agri's oil palm plantation covers 260,000 hectares, of which 69,000 hectares are operated by local farmers under a nucleus estate-smallholder cooperation scheme.

Eva estimated Golden Agri's CPO output would hit one million tons this year, up from around 850,000 tons last year.

Of that amount, she said, Golden Agri normally sets 40 percent aside for the export market.

"Our position in the international market will be much stronger. Now we have the goods, without it people can dictate to us," Eva said.

She said she preferred to export most of Golden Agri's CPO output rather than used it as raw material for Indofood's food division.

Instead, she said, she would purchase the CPO for the company's food division through the local market.

"The local market knows that we have our own oil palm plantation, so they won't foul us with the price," she said.

Under favorable international prices, she said, Indofood might purchase its CPO needs entirely from the local market, allowing it to export its own CPO output.

Eva said the finalization of Golden Agri's acquisition depended on the outcome of its due diligence. Afterwards, Indofood must also seek its shareholders approval.

The due diligence on Golden Agri may take up six weeks, followed by a general shareholders meeting, which Eva slated for mid August.

She admitted that Golden Agri's acquisition might burden Indofood's financial performance.

With last year's debts of over $400 million, and earnings still in the red, Golden Agri was what Eva called a "challenge for Indofood management."

Nonetheless, she was confident of having made a profitable deal given Golden Agri's potential for Indofood's growth.

"I prefer looking at a company's future value rather than its past value," she explained.

Golden Agri is the producer of the cooking oil Filma, which is a competitor with Indofood's own cooking oil product Bimoli.

Indofood's own strength lies in the food industry, as the company is known as the country's largest instant noodle producer.

Indofood and Golden Agri are subsidiaries of two of Indonesia's largest conglomerate groups, Salim and Sinar Mas respectively.

The Indofood purchase of Golden Agri followed last year's failed attempt to acquire Salim's palm plantations, which were put on sale by the Indonesian Bank Restructuring Agency (IBRA).

IBRA acquired the plantations after the agency took over Salim's loans from local banks.

Indofood was denied purchase of the plantations, because IBRA did not want Salim to regain control over its assets.

Malaysian palm oil giant Kumpulan Guthrie Bhd later purchased the 260,000 hectares plantations for $350 million.

Eva also dismissed concerns that its deal with Golden Agri's parent company AFP may run into a snag, following Sinar Mas debt troubles with foreign and local creditors.

She said Indofood had "no business" with Sinar Mas debt woes.

Sinar Mas' pulp and paper division, Asia Pulp & Paper (APP) has announced a debt standstill for payment of interests and principals on over $12 billion in debts.

But the selling of Golden Agri may concern Sinar Mas' creditors who are likely to vie for the group's assets, should a debt deal fail to materialize.(bkm)