Billionaires Bet on Palm Oil With GIC, Northstar: Southeast Asia

Triputra Agro Persada, the palm oil company owned by Indonesian billionaires Theodore Rachmat and Benny Subianto, will increase its planted area by two-thirds by 2015 as it prepares for an initial stock sale.

Triputra Agro Persada has been buying plantations since it was set up in 2005 and currently owns about 300,000 hectares (740,000 acres), Chief Executive Officer Arif Rachmat said in an interview in Jakarta Sept. 7. It plans to increase its planted areas to at least 200,000 hectares from more than 120,000 hectares with the help of funding from TPG Capital’s Indonesian partner, Northstar, and Government of Singapore Investment Corp.

An initial public offering is planned for in three to five years, Rachmat said. “We will do it at the most optimum time. It’s hard to say where commodity prices will be.”

TPG’s Indonesian partner, Northstar, and the Singapore sovereign wealth fund invested $200 million for a “small minority stake” in Triputra Agro Persada in August and have the option of investing an additional $50 million in the next few months, the 37-year-old son of Theodore Rachmat said. That’s the biggest private-equity investment in Southeast Asia’s largest economy this year, according to data compiled by Bloomberg.

The benchmark palm oil price in Malaysia, the second- largest producer, has dropped 7.5 percent this year through Sept. 10 as a slowdown in China and Europe cut consumption. Global demand for the tropical commodity used in everything from candy to lipstick, is set to “grow strongly” because of its increasing use in bio-diesel and electricity production, according to a report by PricewaterhouseCoopers LLP this year.

‘Quite Comfortable’
“We are optimistic about the industry,” Rachmat said. “It is not only driven by demand for food in countries such as India, China and Indonesia, but also demand for bio-fuel.”
The company is “still quite comfortable” with the price of palm oil because of record soybean prices, which have increased the cost of a rival edible oil that’s crushed from the beans, he said. The worst U.S. drought in half a century has hurt soybean crop yields.

“Indonesia has not yet exploited its full potential as far as palm oil production is concerned,” said Fauzi Ichsan, a senior economist at Standard Chartered Plc in Jakarta. “If you believe in the next five to 10 years global commodity prices will rise further, you have to invest in Indonesia even though there’s been a correction in the past year.”

Prospective Investors
In addition to the equity investment by GIC and Northstar, Triputra Agro Persada also received more than $600 million in debt financing from 13 local and international banks, including a $260 million syndicated loan, to help fund its expansion, Rachmat said.

“We always recognized the importance of having a sizable land bank, as well as the increasing scarcity of suitable land,” Rachmat said. “As our plantations come to maturity, we are confident they will achieve the types of yields that the top players produce in the industry.”

Triputra Agro Persada went through a “very professional process” and approached a few “triple-A rated” prospective investors this year before deciding on an investment by GIC and Northstar, Rachmat said.

GIC invested in coal producer PT Adaro Indonesia together with the founders of the palm oil company, Theodore and Benny, in 2005, Toddy Sugoto, 36, commissioner of Triputra Agro Persada and Subianto’s son-in-law, said in the same interview. Northstar manages about $1.2 billion and was co-founded by Theodore’s son- in-law, Patrick Walujo.

Global Demand
Indonesia is the largest producer of palm oil, crushed from an over-sized pineapple-like fruit and processed into oils. The World Bank forecast in 2010 that an additional 6.3 million hectares of palm oil plantations will be needed to meet global consumption by 2020. Much of this land is set to be in Indonesia, according to the report, with the country and Malaysia accounting for 85 percent of the world’s palm oil production.

“We want to invest in an industry where Indonesia has a very strong point,” Rachmat said. “Malaysia is already achieving its plateau and Indonesia is still expanding.”

Triputra Agro Persada has more than 24,000 employees, including more than 2,600 families who are involved in their plasma program, under which the farmers lend their land to the plantation company for development and receive a share of the earnings in return.

Billions of Dollars
Theodore’s Triputra Group, which also has coal and rubber- processing ventures with Benny’s PT Persada Capital, posted billions of dollars in revenue last year, the younger Rachmat said, declining to be specific.

The coal venture, which accounts for the biggest share of the two families’ portfolios, includes the billionaires’ stakes in Adaro Energy (ADRO) and other coal concessions, Rachmat and Sugoto said.

Their agricultural investments account for the second- biggest portion of their holdings, with Triputra Agro Persada comprising the largest chunk of it, they said. Their rubber- crumb processing business, PT Kirana Megatara, is Indonesia¹s largest by revenue, they said.

Triputra Group also has interests in auto manufacturing and microfinance, and is the exclusive dealer for Honda Motor Co. (7267)’s motorcycles in West Java.

Theodore, 69, and Benny, 70, each holds at least $1 billion of assets, including their stakes in Adaro Energy, Indonesia’s second-biggest coal producer, according to data compiled and calculated by Bloomberg. The billionaires have known each other since the 1960s when they studied at Bandung Institute of Technology and began their careers at PT Astra International, Indonesia’s biggest car seller. The younger Rachmat and Sugoto declined to comment on their families’ wealth.

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