Jakarta’s land crackdown clouds outlook for Singapore-listed plantation firms

[SINGAPORE] Singapore-listed palm oil firms with Indonesian exposure are treading cautiously as Jakarta pushes ahead with a sweeping land seizure. The authorities have confiscated more than 2 million hectares (ha) of allegedly illegal forest concessions, raising concerns over the impact of the potential fallout on these companies’ operations.

With reviews still ongoing, plantation groups, including Bumitama Agri and First Resources, that were contacted by The Business Times, either declined to comment or acknowledged regulatory discussions.

In response to BT queries, Bumitama Agri, a pure upstream plantation player in Indonesia, said that it is in discussions with Indonesian authorities, though it could not specify how much land may be affected.

“The process to fully resolve the matter with (the) relevant authorities is still ongoing,” said a spokesperson for the mainboard-listed company.

“However, we would like to assure you that aside from complying with all prevailing laws and regulations, Bumitama is fully committed to conducting its business sustainably by ensuring our initiatives are (up to date) with the ever-changing dynamics in the business landscape,” the spokesperson added.

As at 2.04 pm on Wednesday (Aug 6), Bumitama Agri’s shares were down 1.8 per cent or S$0.015 at S$0.82. The counter’s market capitalisation stood at about S$1.5 billion.

First Resources, a vertically integrated palm oil player primarily based in Indonesia, declined to comment, citing the ongoing review by the Indonesian government. Its counter was trading flat at S$1.55 as at 2.04 pm with a market capitalisation of S$2.4 billion.

Golden Agri-Resources and Kencana Agri, the other two vertically integrated palm oil companies with significant plantation exposures in Indonesia, have not responded to BT queries.

As at 2.04 pm, Golden Agri-Resources’s counter was flat at S$0.26 with a market capitalisation of S$3.3 billion. Kencana Agri’s shares were unchanged at S$0.09, and its market capitalisation stood at S$25.8 million.

The lack of clarity from the major palm oil players on the Singapore Exchange (SGX) highlights potential financial and operational risks, given their Indonesian exposures.

A research analyst from RHB told BT that while the new regulation issued “may not be crystal clear” as is the case for many other regulations in Indonesia, it could affect entities ranging from smallholders to large companies.

“From what we understand, discussions are still ongoing,” said the analyst.

The Indonesian forestry task force, known as Satgas PKH, was formed in February by President Prabowo Subianto under a new regulation issued in January.

In early July, the task force announced that it had seized nearly 400,000 ha of oil palm plantations, previously controlled by 232 companies, and transferred the parcels to Agrinas Palma Nusantara, a new state-owned company formed in January by Prabowo’s administration.

On top of previously seized plantations given by Satgas PKH, this new addition takes the total land managed by Agrinas to more than 833,000 ha, potentially making it one of the world’s largest oil palm growers.

The 232 companies were not named.

The task force is aiming to take over a total of 3 million ha by August, which will either be retained as oil palm and other crop plantations, or reforested, said Indonesian Defence Minister Sjafrie Sjamsoeddin, who heads Satgas PKH, during the handover ceremony on Jul 9.

He noted that the authorities had so far seized more than 2 million ha of illegally run plantations in forest areas across the country, including those growing crops other than oil palms.

Indonesia, as the world’s biggest crude palm oil (CPO) producer, has 16 million ha of land under oil palm plantations, according to its authorities.

Back in April, CGS International said that plantation companies, especially those with higher exposures in Central Kalimantan, may be affected as the Indonesian government was in the process of identifying the alleged illegal oil palm plantations.

According to the brokerage’s research team, private companies held 55 per cent of the country’s oil palm plantation area as at 2023, while smallholders held 41 per cent, and state-owned companies held the remaining 4 per cent.

Uncertified land

While major SGX-listed palm oil plantation companies did not specify the risks associated with land loss in their earnings filings for the most recent financial year, Kencana Agri noted in its FY2024 financial report that the group was in the final process of obtaining business usage rights or Hak Guna Usaha (HGU) certificates for 4,371 ha of land. The number was the same as at the end of 2023.

“Prior to the issuance of the HGU certificates, such land is considered as uncertified land,” said the company in the filing released in February.

It noted that pending the issue of HGU certificates, the group is permitted to physically occupy and build on the uncertified land and to plant and harvest crops.

“However, as the administration of land laws and regulations may be subject to a certain degree of discretion by the Indonesian authorities, there is no assurance that the relevant authorities would not take a different approach or view as regards the uncertified land, its use, registration and future disposal for value,” said Kencana Agri in the filing.

It added then that the group’s interest in the “uncertified land” may be affected if the authorities take a different approach.

CPO outlook

Besides the potential land loss, the volatility of CPO prices also adds to the outlook risk of the palm oil players.

RHB Research highlighted in a note in July that it expects CPO prices to remain unstable given the ever-changing geopolitical situation.

The team revised down its CPO price assumptions to RM4,100 (S$1,248) per tonne for 2025, from RM4,300 per tonne previously.

“Fundamentally, however, global supply and demand will likely be more balanced in 2026, as supply improves, while demand should pick up given the more attractive relative prices,” wrote the team.