Plantation companies with substantial operations in Indonesia, particularly SD Guthrie Bhd, Genting Plantations Bhd and Kuala Lumpur Kepong Bhd (KLK), could face greater regulatory uncertainty following Indonesia’s approval of a new agrarian reform law, according to CIMB Securities.
In its plantation sector report, CIMB said the law, passed by Indonesia’s parliament on Sept 22, introduces a broader framework to address land ownership concentration, land redistribution and agrarian conflicts.
A key concern for plantation operators is the proposed introduction of maximum limits on land ownership and control, including land held through affiliated entities.
However, the actual thresholds have yet to be determined and are expected to be outlined in subsequent implementing regulations.
Potential 20% Land Redistribution Requirement
CIMB highlighted a provision that could have implications for plantation companies holding Hak Guna Usaha (HGU), or cultivation rights, and plantation business permits.
Based on publicly available reporting on the approved bill, such operators would be required to allocate at least 20% of the relevant land area for agrarian reform and redistribution, with an alternative allowing the land obligation to be replaced by profit sharing equivalent to 20%.
The provision has also been highlighted in Indonesian reporting on the legislation, although its application to existing plantation holdings requires further clarification.
CIMB said the eventual impact on plantation companies would depend on the final landholding limits, treatment of affiliated entities, scope of the 20% requirement and whether the rules would apply to existing land banks.
Malaysian Planters Have Varying Exposure
Within CIMB’s Malaysian plantation coverage, SD Guthrie, Genting Plantations and KLK have the largest absolute exposure to Indonesia and would therefore warrant closer monitoring as the regulations are finalised.
IOI Corporation Bhd has comparatively smaller Indonesian exposure, while Ta Ann Holdings Bhd, Johor Plantations Group Bhd and Hap Seng Plantations Holdings Bhd have plantation operations entirely in Malaysia.
Despite the potential implications, CIMB does not anticipate an immediate earnings or land bank impact on Malaysian plantation companies.
The research house has made no adjustments to its earnings forecasts or land bank assumptions at this stage, pending the final promulgated text of the law and its implementing regulations.
CIMB’s assessment is that the immediate concern for Malaysian planters is heightened regulatory uncertainty rather than a confirmed loss of plantation land or earnings.
