Kuala Lumpur Kepong Buys 95% of Indonesian Palm Oil Producer

The REA group held agricultural land allocations in East Kalimantan - Photo by R.E.A Holdings Plc

JAKARTA (TheInsiderStories) – Malaysian publicly listed company Kuala Lumpur Kepong Berhad (KLK) has entered into a Share Purchase Agreement with PT REA Kaltim Plantations to acquire 95 percent equity interest in PT Putra Bongan Jaya (PBJ). The deals is amounting around RM300 million (US$78 million).

Based on the company statement to Bursa Malaysia on April 25, the proposed acquisition is expected to be completed in the third quarter of 2018, subject to the fulfillment of all conditions precedent in the SPA.

In the same time, REA stated in a press statement, the sale is expected to realize gross proceeds of approximately $85 million and net proceeds of approximately $57 million after repayment of external borrowings and net of selling expenses.

PBJ is an Indonesian company which owns an oil palm plantation located in the Kutai Barat Province of East Kalimantan. The plantation has land bank of 11,602 hectares and an additional land allocation subject to completion of titling of 4,460 hectares.

At completion of the sale, it is projected that 7,482 hectares of land will have been planted by PBJ for its own use, of which 810 hectares will be mature and the balance immature. A further 635 hectares is projected to have been planted for smallholder schemes managed by PBJ for the benefit of local communities.

The proceeds of the sale of the PBJ shares and the repayment of monies owed by PBJ to the REA group will be applied in reduction of REA group indebtedness.

The gross assets of PBJ to be included in the REA group accounts at Dec. 31, 2017 will be $77.3 million and the net assets (after deduction of the 5 per cent non controlling shareholder interest) will be $51.2 million.  Loss before tax so to be included will be $0.2 million.

PBJ located in West Kutai Regent, East Kalimantan and have to manage palm oil plantation for three years period and renewable for a further of one year. It is projected that approximately 7,500 hectares will be planted as at completion.

Palm oil is the main agricultural export of Indonesia and Malaysia, generating 10 percent and 5 percent respectively of their exports. The sector provides employment for 721,000 smallholders and laborers in Malaysia, and 4 million in Indonesia; a further 11 million in the two countries are indirectly dependent on it.

Some analysts saw in this year, palm oil output in Indonesia is forecast to rise to 37.8 million tonnes, while Malaysian output is expected to increase to 20.5 million tonnes. Nearly 90 percent of global supply is from Indonesia and Malaysia.

The Malaysian Palm Oil Board reported in 2017 output at 19.9 million tonnes, while the Indonesia Palm Oil Association estimated production last year at 36.5 million tonnes.

Indonesia is aiming to expand biodiesel subsidies to cover consumption of palm oil-blended fuels by the mining sector this year. The subsidy for its programme with a minimum 20 percent bio content was previously only available to the power sector.

Malaysia’s biodiesel mandate requires a minimum biofuel content of 7 percent for its transportation sector.

Recently, the intergovernmental organization Council of Palm Oil Producers Countries (CPOPC), which has members countries of two top palm oil producers in the world Indonesia and Malaysia, protests UK Supermarket Iceland Co policy over palm oil ban in their retail chain by the end of 2018.

Indonesia is the largest producer of palm oil with last year total exports of 28 million tonnes of crude palm oil, valued US$23 billion. Crude palm oil contributed to 12 per cent of the Indonesia’s export.

US$1: RM$0.26

 Email: linda.silaen@theinsiderstories.com