KUCHING: Malaysian companies which own plantations in Indonesia are likely to be the biggest losers should the latter’s government choose to cap foreign ownership.
Meanwhile, plantation stocks on Bursa Malaysia were traded mostly lower yesterday on this news. At closing, the Plantation Index fell 60.979 points to 8,808.32.
Sime Darby Bhd eased 20 sen to RM9.51, Kuala Lumpur Kepong Bhd slipped 18 sen to RM23.12 and TSH Resources declined seven sen to RM3.48.
According to Reuters, Indonesian lawmakers are mulling a bill to restrict foreign ownership of plantations there to no more than 30 per cent from a current 95 per cent. The report also elaborated that their objective is to open up the sector to smaller Indonesian players while foreigners will be given five years to comply.
“In our view, Indonesian lawmakers may first consider the impact to foreign investment in their plantation industry before passing the bill,” opined analysts at Kenanga Investment Bank Bhd (Kenanga Research).
“Additionally, we believe plantation players in Indonesia are likely to oppose the move as they have invested heavily in the country’s palm oil industry.
“Nevertheless, in the worst case scenario where the bill is passed into law, it will be negative to most planters under our coverage due to reduced long-term earnings from their plantations there.”
RHB Research Institute Sdn Bhd (RHB Research) analyst Alvin Tai said the proposed move would impact Malaysian companies such as Sime Darby Bhd, Kuala Lumpur Kepong Bhd and TSH Resources Bhd, which are receiving significant earnings contributions from their Indonesian operations.
“We believe such a harsh law may not become a reality, as Indonesia has just had a change of government. This is despite the previous government having introduced measures with a nationalistic slant,” Tai said in his note yesterday.
He added the move would also be difficult to implement retrospectively, given the large number of companies that may be affected and the need to find buyers to take up those assets.
“Nevertheless, if implemented, we believe it would be negative for the sector’s long-term growth and could weaken the rupiah further,” he said.
Indonesian lawmakers are looking to restrict foreign ownership of plantations in an attempt to maximise land usage, protect indigenous people and tighten environment control in the sector.
Maybank Investment Bank Bhd’s research team (Maybank Research) believed the proposal would not only affect Singapore and Malaysian-listed groups with plantation estates in Indonesia, but also Indonesian-listed companies that are substantially owned by foreigners.
Given the scale of the potential equity sale, Maybank Research said the move would weigh heavily on the sector with a valuations de-rating as prospective Indonesian buyers will have the bargaining power, thus causing massive selling pressure.
“This development poses regulatory risks. But we believe it may be more politically driven and doubt it would be passed. It will have negative repercussions on Indonesia’s investment climate,” it said.
Nevertheless, it said the new bill could boost interest in plantation stocks not exposed to Indonesia, such as Sarawak Oil Palms Bhd, Ta Ann Holdings Bhd and New Britain Palm OIl Ltd.