CIMB Research viewed the developments as “negative” for upstream plantation companies with exposure in Indonesia.
PETALING JAYA: Regulatory pressure in Indonesia’s plantation sector is set to intensify, raising concerns for Malaysian companies with exposure in the republic following recent government moves to seize and transfer land operated without forestry permits.
According to CIMB Research, a decree of Indonesia Forestry Minister had named 436 oil palm firms which are operating illegally in forest areas.
Among them were subsidiaries of Genting Plantations Bhd
, Kuala Lumpur Kepong (KLK), and SD Guthrie Bhd, all of which have land under legalisation review or rejected from legalisation.
“The companies listed in the decree fall into two categories: those under the legalisation process, having applied before the Nov 2, 2023 deadline in line with Article 110A of Law No. 6/2023, and those rejected from legalisation owing to non-compliance with the stated criteria,” CIMB Research noted in a report.
Genting Plantations applied to legalise 18,448ha, with 13,365ha under process and 4,464ha rejected.
KLK’s applications covered 4,368ha, with 1,800ha under review and 1,368ha rejected.
SD Guthrie had 3,045ha involved, with 1,874ha under process and 1,171ha rejected.
Meanwhile, IOI Corp Bhd’s 32%-owned Indonesian associate Bumitama Agri applied for 30,115ha, of which 29,975ha were under legalisation, while 5,570ha were rejected.
The decree covered over one million hectares, including 790,000ha under legalisation and 317,000ha rejected.
“However, this is still short of the Indonesian government’s stated goal of reclaiming three million hectares of illegal plantation land,” it said.
Reuters reported on Wednesday that the Indonesian government transferred 394,547ha of seized plantations to Agrinas Palma Nusantara, a new state-owned enterprise formed in January.
The transfer, involving estates previously run by 232 unnamed firms, pushed Agrinas’s total land under management to over 833,000ha.
Agrinas CEO Agus Sutomo was quoted as saying that the group was still assessing the status of each plantation, noting that out of 484,000ha inventoried, around 271,000ha were productive, while the remainder were degraded. The company currently produces 6,000 tonnes of fresh fruit bunches daily.
The head of the Indonesian forestry task force and Defence Minister Sjafrie Sjamsoeddin stated that more than two million hectares of illegally operated plantations had already been seized, with the goal of reaching three million hectares by next month.
“Agrinas’s plan, to take over or reforest up to three million hectares of palm oil and other crop plantations, is likely to raise concerns over rising regulatory risks in Indonesia, particularly as some of the targeted land may overlap with estates owned by listed companies,” CIMB Research cautioned.
The research house viewed the developments as “negative” for upstream plantation companies with exposure in Indonesia, as they reflect rising regulatory hurdles, environmental, social and governance risks and uncertainty over land tenure.
“These developments raise broader concerns over future regulatory shifts in Indonesia and may increase the risk premium required by investors for companies with plantation exposure in Indonesia,” it said.
While Malaysian plantation companies said the financial impact might be manageable, CIMB Research noted that they are still evaluating the legal implications.
Genting Plantations has already set aside a RM66mil provision in the first quarter of the year related to potentially affected land.
CIMB Research maintained “hold” ratings for Genting Plantations, KLK, and SD Guthrie, with target prices of RM6.20, RM21.50, and RM3.90 respectively.
IOI Corp, viewed more favourably due to its lower exposure via associate Bumitama, was rated “buy” with a target price of RM4.65.
