12/11/2007 (International Herald Tribune), Jakarta - Indonesia, the largest palm oil producer in the world, plans to set up a holding company for its 14 state-owned plantation owners, a proposal that may precede a share sale within two years.
The nation will consolidate the palm oil, coffee and rubber estate companies, known as PT Perkebunan Nusantara I to XIV, by the end of the year, Sofyan Djalil, the minister of State-Owned Enterprises, said.
The holding company will have a single board and may help the government trim costs and take greater advantage of surging prices of palm oil, rubber and coffee. The Malaysian Synergy Drive, created to buy the state-backed palm oil growers and increase efficiency, is set to start trading this month.
"In terms of financial strength, a large entity can better turn to the financial markets and not just rely on bank loans for expansion and diversification," said Derom Bangun, the head of the Indonesian Palm Oil Association.
The government in 2005 owned 962,055 hectares, or 2.4 million acres, of plantations, and produced 2.5 million metric tons of palm oil, rubber and five other farm products. The country, the largest economy in Southeast Asia, straddles the equator and is a major producer of tropical commodities. Neighboring Malaysia is the second-largest palm oil grower in the world.
Indonesia has been reorganizing companies in which it holds stakes, and selling shares in some to raise efficiency and help plug a budget deficit. The government is also considering the creation of a holding company for state-linked mining companies, Djalil said Nov. 5.
Synergy Drive, set to be the largest oil palm grower in the world after buying companies including Sime Darby, will start trading in Kuala Lumpur on Nov. 30.
The group will have a stock market value of more than 50 billion ringgit, or $15 billion, Synergy said last month, potentially making it the largest listed company in the country, surpassing Malayan Banking.
To be sure, the Indonesian holding company may encounter difficulties as the 14 estate units "have complex problems," according to Bustanul Arifin, an analyst at the Institute for Development of Economics and Finance in Jakarta.
"The idea is O.K. for efficiency but it won't be easy to implement," said Arifin. "It would be better to set up several holding companies based on the commodity."
Palm oil futures in Malaysia touched a record 3,013 ringgit, or $903, a metric ton Friday, and have gained 79 percent over the past 12 months.
Bangun, the head of the palm oil association, said Thursday that the price may rise as high as $1,000 a ton next year on increased demand and a shortfall in vegetable oil supplies.
Indonesia "has been aggressively expanding its oil palm cultivation in the past 10 years," Credit Suisse analysts led by Andrew Garthwaite said in a report on rising agricultural prices dated Nov. 6. "Food-price inflation is likely to remain elevated over the next three to five years."
China and India, the biggest vegetable oil buyers, import palm oil to fill shortages in supplies of soybean, groundnut and canola oils.
China purchased 3.9 million tons of palm oil from January to September, 1 percent more than a year earlier, while India imported 2.62 million tons, up 32 percent from a year ago.
Palm oil prices have also been lifted by a surge in crude oil to a record because the commodity can be used to make biodiesel.