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Indonesian plan to limit foreign ownership will hurt Malaysian firms

Publication Date : 19-08-2014

 

Malaysian planters will be the biggest losers if Indonesia decides to restrict foreign ownership of plantation companies there to not more than 30 per cent from the current 95 per cent.

“The proposal will have the biggest impact on Malaysian-listed companies, as most of them have gone into Indonesia in a big way and are highly dependent on Indonesian operations for future growth,” UOB KayHian Research told clients in a report.

Some of the local companies with Indonesian operations include Sime Darby Bhd, Kuala Lumpur Kepong Bhd (KLK), Felda Global Ventures Holdings Bhd, IJM Plantations Bhd and Genting Plantations Bhd.

At the close of yesterday’s trading, most plantation counters were down led by a handful of stocks such as KLK and Genting Plantations, which shed 18 sen each to 23.12 ringgit and 10.38 ringgit, respectively.

Softer crude palm oil prices – currently at their lowest since October 2009 – also helped push the shares lower, dealers said.

Nevertheless, analysts pointed out that it was still early days for the policy, with Indonesian lawmakers still studying the possibility of limiting foreign ownership in the plantation sector.

Affin Investment Bank has maintained its “overweight” call on the sector for now.

“It remains to be seen if the new Indonesian administration (led by Joko Widodo) will agree to the Bill as well as the foreign ownership limit, which is also being considered for other sectors, including banking and mining.”

The investment bank suggests that Malaysian planters could consider mergers with Indonesian peers to reduce equity stakes in response to the new possible measure.

RHB Research told its clients that although Indonesia had implemented nationalistic measures, “we believe there is a possibility that such a harsh law might not materialise, since the country has just had a change of government”.

“We believe there are many grey areas and potentially many loopholes.”

Still, if the law does materialise, then the research outfit concurs with UOB KayHian that Malaysian companies with plantations in Indonesia could likely be the biggest losers.

 

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