Smart Refinery to Boost Palm Oil Production as Demand Keeps Rising
Sinar Mas Agro Resources and Technology, a plantation unit of Sinar Mas Group, plans to boost the capacity of its refinery production to tap into demand for edible fat.
Dicky Bayu Atmadja, vice president for finance at Smart, said on Monday that the company would increase the production capacity in its palm oil refinery plant in South Kalimantan from 1,000 tons to 3,000 tons per day. Smart produces cooking oil and edible fats from its refineries.
To finance the expansion plan, the company is planning to sell bonds as it tries to raise Rp 1 trillion ($106 million) in July. The company plans to offer the notes to investors from June 28 and 29 and plans on listing them on the Indonesian Stock Exchange on July 4.
The company set the coupon on the five-year bonds at 8.25 percent to 9.25 percent per coupon, and the seven-year bonds at 8.5 percent to 9.5 percent. It did not set the size of each maturity.
The Rp 1 trillion bond sale is part of the company’s long-term plan to sell Rp 3 trillion of bonds. The company has hired Bahana Securities, Indo Premier Securities and OSK Nusadana Securities Indonesia to help sell the notes.
Dicky said 60 percent of the proceeds from the bond sale will be used to finance its capital expenditure on refinery expansion and the remaining 40 percent will be used for working capital, like crude palm oil supply to the refinery.
Jimmy Pramono, a director at Smart, said the company was still optimistic in demand for edible fats from countries like India and China. He said demand from India had increased 15 percent last year.
“Demand from these countries will balance some slowdown from Europe,” Jimmy said.
Smart exports 83 percent of its products to China, India and Europe. The remaining 17 percent are sold in the domestic market.
Jimmy added that the price of CPO was trading at an average of $1,000 per ton this year and would remain at that level for the rest of 2012, which he called a comfortable level for Smart.
“The price is good. With the current price, it is still profitable for the industry,” Jimmy said.
Kenglin Tan, a Hong Kong-based managing director at Manulife Asset Management, said that in the medium- to long-term, the price of CPO should stabilize with demand from India and China boosting the market.
“There might be some impact, but no matter what happens, these two countries are big with billions of people and they still need to eat,” Tan said, adding that demand for edible fat made from palm oil would always exist.
Jimmy said the company might also increase the capacity at its Marunda refinery in West Java. From the total of four refineries, the company has 1.38 million tons of annual production capacity.
Smart targets to increase its CPO production by eight percent to 10 percent this year, Jimmy said.
Last year, the company’s CPO production was at 709,000 tons.
Smart is a unit of the diversified Sinar Mas Group, and is controlled by Indonesian businessman Eka Tjipta Widjaya.