The age profile of their trees in Indonesia is getting old… They will have to do replanting for almost 90,000ha for the next 5 to 6 years, says analyst

By SHAHEERA AZNAM SHAH / Pic By BLOOMBERG

SIME Darby Plantation Bhd’s (Sime Plantation) potential sale of a stake in an Indonesian unit could help finance the planter’s replanting activities as its current acreages there have surpassed the optimal harvesting life-cycle stage.

RHB Research Institute equity research VP Hoe Lee Leng said the planter may have to spend about RM1.4 billion to RM1.6 billion over the next three years on replanting of 90,000ha of matured landbank in Indonesia.

“The main reason why Sime Plantation will be looking into a stake sale is that they probably need to spend a chunk of money in the next three years for replanting exercise.

“The age profile of their trees in Indonesia is getting old, almost 20% of the trees are above 22 years and about 26% are between 19 years and 22 years.

“They will have to do replanting for almost 90,000ha for the next five to six years. Given the huge amount of investment required to rejuvenate the landbank, Sime Plantation is probably seeking funding through a stake sale,” she told The Malaysian Reserve.

Earlier this week, the Wall Street Journal reported that the planter is mulling a dual-track process of divesting its stake, either by listing its Indonesian unit or entering a strategic sale for its subsidiary PT Minamas Gemilang.

The upstream business in Indonesia is operated by PT Minamas Plantation with a total landbank of 278,283ha, of which 201,012ha are being planted and about 79% is mature.

According to its official website, the planter operates 66 oil palm estates in Indonesia, a rubber estate and 23 mills located in Sumatera, Kalimantan and Sulawesi.

In a Bursa Malaysia statement on Tuesday, Sime Plantation stated that it is undertaking an exploratory corporate exercise to review its assets. “In the ordinary course of reviewing its assets, the company undertakes corporate exercises that are exploratory in nature which may also include request for proposals for various consultancy and financial advice.

“The company is cognisant of the need for proper dissemination of information to the public and will release announcement to Bursa Malaysia Securities Bhd on any material issue on a timely basis,” it said.

Hoe said it is not viable for Sime Plantation to dispose of all its Indonesian estates due to the large sum of earning contribution from the unit.

“The important thing here is how much stake they will want to hold in Indonesia. It won’t be great for them to get rid of its entire upstream business there.

“If they are going for an IPO, at least they will be able to keep a majority stake and giving up (majority stake) will only let them account for the sale proceeds,” she said.

Sime Plantation’s shares rose 16 sen or 3.6% yesterday to RM4.61, giving it a market capitalisation of RM31.74 billion.