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Indonesia’s government plans to create one of the world’s largest palm oil and rubber firms in March by combining state planters with total assets of $5.6 billion, a government minister said on Thursday.

A planned listing of the firm will tap investor interest in a country with a recently acquired “investment grade” rating and create a rival to top regional planters such as Malaysia’s Sime Darby and Singapore’s Wilmar.

The government will consolidate the assets of 15 state firms, whose revenues last year stood at around Rp 40 trillion ($4.45 billion), under parent company PT Perkebunan Nusantara III.

“This holding will become one of the largest plantation firms in the world with one million hectares of palm oil and rubber,” State Enterprises Minister Dahlan Iskan said in an interview.

The sprawling archipelago of 17,000 islands is the world’s biggest exporter of palm oil, second biggest producer of rubber and robusta coffee and third biggest producer of cocoa . The state firms produce all these commodities as well as tea, rice, cassava and sugar.

Analysts said the consolidation of the state firms would produce some economies of scale but would not have a dramatic impact on commodity supply.

“They have been producing. It is not new supply coming into the market. This is just a rationalization of government linked assets,” said Carey Wong, an analyst with OCBC Bank in Singapore.

The last mega-plantation merger was in 2008 when Malaysia’s government pushed for the tie-up of three state-linked planters to form Sime Darby, which it touted as the largest plantation firm by assets.

Borneo Rice Bowl

Indonesian state plantation firms will combine to produce an extra 500,000 tons of rice from planting 100,000 hectares of new paddy fields in east Kalimantan on Borneo island, Iskan said, without giving a timeframe for the production.

Indonesia, the world’s fourth largest country by population, is trying to become self-sufficient in production of its staple grain. But it surprised regional markets last year with hefty imports from Thailand and Vietnam. Expanding paddies could help its aim not to import again this year.

“I expect Indonesia could produce an additional 280,000-300,000 tons of paddy from the newly planted areas of 100,000 hectares,” said Chookiat Ophaswongse, the honorary president of the Thai Rice Exporters Association.

Plantation firms have been restricted this year from expanding in forested areas such as Borneo by Indonesia’s two-year moratorium on new forest clearance and land acquisition is in any case seen as a hurdle in a country known for red tape.

Indonesia in December passed a land bill designed to speed up land acquisition for state projects deemed in the public interest and the law could enable the new firm to get access to land for rice.

Top Landbank

Iskan said the combined profits of the firms to be amalgamated were around Rp 3.6 trillion. The government plans to first list one of the firms, Perkebunan Nusantara VII, as a unit of the holding firm this year on Jakarta’s stock exchange.

“After PTPN VII, we’re open for other units to list on the stock exchange but eventually we will list the parent company and I don’t think we should retain a majority stake once it is listed,” Iskan said.

The combined palm oil and rubber landbank of the holding company Perkebunan Nusantara III will be bigger than that of the main existing listed regional planters. Sime Darby currently tops the list with 525,795 hectares for palm oil and has a market value of $18.2 billion.

Analysts said the new Indonesian merger’s hefty landbank would pull in investors.

“It is massive. They are talking about a million hectares. That would be massive. I’m sure the stock market will be very excited,” said John Rachmat, a palm oil analyst at the Royal Bank of Scotland in Singapore.

Reuters