Monday, September 24, 2012

Steady progress for Palm Oil industry

Golden-Agri Resources, otherwise known as (GAR) was founded in 1996, and is the second largest palm oil plantation company in the world. Their plantations are located in Indonesia, and they currently have an accumulated planted area of about 457,000 hectares, with operations focusing on the production of palm-based edible fat and oil.


As of September 2012, their major shareholders are: Flambo International Ltd; an investment company with 50% of total shares, Van Eck Associates Corporation; an investment management firm, with 1.8%, and Carmignac Gestion; another investment company, with 1% of total shares.

Fund Raising

Golden-Agri Resources plan to raise $400 million via convertible bonds.
Convertible Bond Information
The convertible bonds had an issue price of 100% of the principal amount, and payment and settlement was expected to take place on October 4th 2012. Interest on these bonds is expected to be about 2.5% per year and paid every 6 months. The conversion price is $0.8896 which is a conversion premium of 28% above the closing price on September 5th 2012. The conversion period is any time between November 14th 2012 and September 27th 2017, and proceeds from the bonds are expected to be about $394.45 million.
Use of Proceeds
The majority of the proceeds are expected to be used for general corporate purposes, potential mergers & acquisitions in Indonesia, and Greenfield investments. However, Golden-Agri Resources have stated that some of the funds will be used for mergers & acquisitions, and Greenfield investment opportunities outside of Indonesia in areas such as Europe and India.

Subsidized Fuel Ban

Recently, Reuters reported that from September 1st 2012, Indonesia will ban palm oil plantation companies from using subsidized fuel. This will increase production costs and have an adverse impact on many plantation companies. However, larger companies like Golden-Agri Resources have not been allowed to use subsidized fuel for some time, and expect this new ban to cause no impact on its production costs. GAR's International Relations team have stated that historically their transport costs are about 7-8% of their total production costs, and they do not expect that to change.

Plantation Age

As of June 2012 46%, almost 212,000 hectares of Golden-Agri Resources total plantations were considered to be prime (between 7-18 years), 26%, about 115,000 hectares were considered old (over 18 years), and 28%, and about 28%, 130,000 hectares were considered to be young or immature (under 6 years).

Financial Predictions

Phillip Securities Research Pte Ltd (PSR) are predicting that Golden-Agri Resources will continue to show steady growth over the next few years:
·         Total Revenue is expected to rise from $3,505 million in Fiscal Year (FY) 2010 to $7,462 million in Fiscal Year 2014
·         Total Assets are expected to go from $10,114 million in FY 2010 to $13,668 million in FY 2014
·         Shareholder Equity is projected to increase from $6,826 million in FY 2010 to $9,738 million for FY 2014
Because of the current market and financial predictions, PSR have increased their price to earnings (PE) peg from 12.0x to 12.5x, which has raised their fair value estimate from $0.75 to $0.77.

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