Bumitama Agri

Business Times - 04 Apr 2012

Bumitama Agri launches IPO at 74.5 cents a share

By LIM WEI SHENG

INDONESIAN palm oil producer Bumitama Agri has launched its initial public offering (IPO) for a listing on the Singapore Exchange mainboard, pricing its shares at 74.5 cents each, at the top of its 67.5-74.5 cents indicative range.

The IPO is up to $243.9 million in size based on its global offering of up to 327.324 million shares - assuming an over-allotment portion is fully exercised.

Not including the over-allotment option of 29.754 million shares from the vendor, the global offering is 297.57 million shares, consisting of 273.334 million new shares and 24.236 million vendor shares.

The 297.57 million offer shares comprise a public offer tranche of 15 million shares, a placement tranche of 157.737 million shares and a tranche of 124.833 million shares for cornerstone investors.

Bumitama expects to raise net proceeds of about $195.2 million from the new shares, of which about 73 per cent will be spent on capital expenditure for expansion and development of uncultivated land bank and plantations.

The allotment of the new shares is set to bring Bumitama's total number of issued and outstanding shares to 1.76 billion units, with a market capitalisation of about $1.31 billion.

The IPO has attracted much interest from institutional investors, with the placement being 31 times subscribed, according to Matthew Song, head of equity capital markets, SEA, HSBC. HSBC and DBS Bank are the issue managers and underwriters for the IPO.

More than 150 investors have subscribed, said Mr Song, of which half are global long-only funds, 30 per cent are hedge funds and the remainder a mixture of high net worth individuals and corporate investors. Ninety per cent of them are from Asia.

The IPO is priced at a price-earnings ratio of 11. In relation to listed comparables, Mr Song noted that 'First Resources is currently trading at a ratio of about 11.8, and Golden Agri at a ratio of around 11'. Mr Song also added that Bumitama's PE ratio has met with minimal or zero price sensitivity from investors.

The enthusiastic response towards the offering follows on growing investor interest in commodity spaces, especially in the area of crude palm oil (CPO). 'There is a positive outlook on CPO pricing,' said Mr Song. 'And Bumitama, as one of the youngest plantation involved in the upstream business, is necessarily very sensitive to CPO pricing.'

There is also an increasing interest in palm oil relative to its substitutes, according to Lim Gunawan Hariyanto, CEO of Bumitama. 'The fastest growing in terms of productivity is palm oil. . . The (market) share of palm oil 20 years ago was 14 per cent and today it is 20 per cent. . . For soya bean . . . 20 years ago it was already 18 per cent but now it is (only) about 22 per cent.'

Concurring, Mr Song commented: 'We have seen palm oil outpacing soya bean oil in terms of demand.'

For FY 2011, Bumitama's net profit attributable to owners was 761.9 billion rupiah (S$104 million), down 15 per cent from 892.5 billion rupiah in 2010. 2011 revenue was 2.80 trillion rupiah, a 43 per cent increase from 1.96 trillion rupiah in 2010.

First-quarter results are likely to be 'in line with forecasts', said the company in an interview.

Bumitama's public offer closes at noon on April 10. Share trading is expected to commence on April 12.

Quote:The IPO has attracted much interest from institutional investors, with the placement being 31 times subscribed, according to Matthew Song, head of equity capital markets, SEA, HSBC. HSBC and DBS Bank are the issue managers and underwriters for the IPO.

More than 150 investors have subscribed, said Mr Song, of which half are global long-only funds, 30 per cent are hedge funds and the remainder a mixture of high net worth individuals and corporate investors. Ninety per cent of them are from Asia.

The IPO is priced at a price-earnings ratio of 11. In relation to listed comparables, Mr Song noted that 'First Resources is currently trading at a ratio of about 11.8, and Golden Agri at a ratio of around 11'. Mr Song also added that Bumitama's PE ratio has met with minimal or zero price sensitivity from investors.

With PE same as the listed comparables (with listing history of financials for all to see), what's the key that's attracting a 31x over subscription by the 'sophisticated' placement market? Market leadership? Zero debts?

(04-04-2012, 07:53 AM)KopiKat Wrote: With PE same as the listed comparables (with listing history of financials for all to see), what's the key that's attracting a 31x over subscription by the 'sophisticated' placement market? Market leadership? Zero debts?

hi KopiCat,
(On a rainy mid week wed). Maybe here's why:

Bumitama has one of the youngest palm oil plantations in Asia and owns 190,000 hectares of land, of which only 100,000 have been planted with palm oil, leaving room for more growth.

http://bizdaily.com.sg/newsite/bumitama-...4-million/

(04-04-2012, 08:40 AM)weijian Wrote:

(04-04-2012, 07:53 AM)KopiKat Wrote: With PE same as the listed comparables (with listing history of financials for all to see), what's the key that's attracting a 31x over subscription by the 'sophisticated' placement market? Market leadership? Zero debts?

hi KopiCat,
(On a rainy mid week wed). Maybe here's why:

Bumitama has one of the youngest palm oil plantations in Asia and owns 190,000 hectares of land, of which only 100,000 have been planted with palm oil, leaving room for more growth.

http://bizdaily.com.sg/newsite/bumitama-...4-million/

Thx!

If so, it'll take at least 2-3 years (?) from planting to 1st harvest. Investors are so forward looking these days!

IIRC, it takes 7 years for the tree to mature.

(04-04-2012, 09:22 AM)freedom Wrote: IIRC, it takes 7 years for the tree to mature.

Wah... so long!
The sophisticated placement investors must be either out for a quick stag in this bullish market environment or they really thought it's like vegetables farming and takes only a couple of weeks!

looks like kopi money making time...

Harvesting actually can start ~3yrs after planting. The yield ll increase n saturates from yr7 onwards. Yields ll decrease from yr18 onwards (got all these info from wilmar website)

These placement guys r nt stupid ~ I guess they see a good story which they can sell to the others for a higher price if the bulls r here. If the bears r here, they believe the growth story will secure their survival.

Bumitama Agri Ltd. IPO Launched; Closing Date of Subscription on 10 April 2012

http://ads1.shareinvestor.com/ipo/201204...ama_Ad.pdf

Prospectus
http://masnet.mas.gov.sg/opera/sdrprosp....5002322E6/$File/1.%20Prospectus%20%28cln%29.pdf

The Straits Times
Apr 10, 2012
Palm oil firm CEO's degree under scrutiny
Prospectus states Bumitama Agri boss got MBA from defunct US varsity

By Yasmine Yahya

IT was just one line in a prospectus running to 448 pages long, but it has raised the eyebrows of at least one sharp-eyed investor.

The prospectus in this case was lodged last Tuesday by palm oil producer Bumitama Agri for its planned listing in Singapore.

It states on page 179 that chief executive Lim Gunawan Hariyanto, 52, obtained his Master of Business Administration (MBA) from the University of Beverly Hills, California, in 1983.

This university was an unaccredited institution with a shady reputation, a retail investor noted in an e-mail message to The Straits Times.

There is little available information about the University of Beverly Hills, but what is clear is that the institution closed in 1986.

According to an Associated Press article from July last year, 'reports from the 1990s described the University of Beverly Hills as a non-traditional school that awarded degrees based on life experience and lacked accreditation for at least part of the time it operated, and was described as a 'diploma mill' by some critics'.

Mr Lim received his bachelor's degree from a more reputable institution - he graduated from the School of Business at the University of Southern California in 1981, with a Bachelor of Business Administration. The university has been ranked among the top 25 in the United States.

When contacted by The Straits Times, Bumitama pointed out that parent company Harita Group has achieved significant growth under Mr Lim's leadership.

He joined the family's timber business in 1984, and helped it expand into gold and coal mining. The group also started bauxite and nickel mining divisions, and entered the oil palm plantation business.

'Bumitama Agri commenced planting in 1998, and under Mr Lim's direction has grown its land bank aggressively to more than 190,000ha as of March 16, 2012,' the company said in a statement sent via e-mail.

Mr Lim took over as chief executive at the Harita Group and Bumitama in 2000. His brother Lim Gunardi Hariyanto is deputy chief executive at both companies. Their father, Mr Lim Hariyanto Wijaya Sarwono, is Harita's chairman.

Finance industry experts said investors should not be too alarmed by the questionable source of Mr Lim's MBA.

Mr Mark Liew, the director of corporate finance at PrimePartners, said what is important is not only an executive's educational background, but also his business experience and track record.

'Has this person dealt fairly with customers, suppliers and competitors?' he asked. 'When institutional investors are considering whether to invest in a company, they would look at the business as a whole and the track record of the whole management team rather than each individual's educational qualifications.'

PrimePartners provides consultancy services to companies seeking initial public offerings (IPOs).

Another finance expert who provides consulting services to IPO hopefuls noted that despite the dubious MBA, 'the CEO has apparently managed the business well, and that's why it has grown to a point where it can pursue a listing'.

But it might have been better if the company had also disclosed that the University of Beverly Hills was unaccredited and is now closed, he added.

KPMG Singapore's head of risk consulting, Mr Irving Low, said the disclosure of a chief executive's qualifications and professional experience should be made in a spirit of integrity and transparency.

'From an investor's point of view, the position of the CEO is important, as it is he or she who will ultimately manage the company and provide the returns - so in a way, investors are looking at the experience and qualification of this individual.'

yasminey@sph.com.sg