Friday, May 11, 2007

Indonesia's richest man plans RM13.6b pulp, palm oil expansion

By Sara Webb
Sukanto Tanoto, Indonesia's richest man, said his unlisted group RGM International has begun a US$4 billion (RM13.6 billion) expansion of its pulp and paper, palm oil, energy, and other interests to increase its size by 70% by 2009.
Tanoto, whose fortune is estimated at US$2.8 billion by Forbes magazine, told Reuters that RGM's five key business units have embarked on new projects in China, Indonesia, and Brazil to build up capacity on the back on a global commodities boom.
"We have just over US$4 billion in expansion activity under way," Tanoto, 57, said in an interview, outlining projects at RGM's palm oil unit, oil and gas business, pulp and paper group, and specialty pulp operations.
Revenue at privately held RGM exceeded US$3 billion last year, Tanoto said. He declined to give profit figures or a breakdown of how much each new project would cost.
RGM's Asian Agri unit has production capacity of about one million tonnes of crude palm oil, the price of which has shot up to around an eight-year high in recent weeks.
Asian Agri's palm oil is used for food production currently, but thanks to a high crude oil price and growing interest in biofuels, Tanoto said he plans to build a biodiesel plant in Sumatra,
Indonesia, to process palm oil.
"Palm oil is like green gold now," he said. "This is a global issue, the balance between food production and fuel production. As long as the (crude) oil price is above US$60 and there
are concerns about global warming, it will be big."
Tanoto said that APRIL, RGM's pulp and paper firm, raised US$300 million in a trade financing deal last year and is expanding its operations in China and Indonesia.
APRIL started building a second paper mill in Sumatra last year, which will double its capacity to 800,000 tonnes a year by the end of 2007. In China, it bought a pulp mill in Shandong province and is adding one million tonnes of pulp production, bringing total capacity at the mill to 1.3 million tonnes a year.
Tanoto said APRIL is the biggest producer of market pulp -- sold to customers rather than used for its own paper production -- in Asia excluding Japan, and one of the region's biggest paper producers after Indonesian rival Asia Pulp & Paper (APP), which defaulted on US$14 billion of debt in 2001.
Tanoto's rayon and specialty pulp firm, Sateri International, is building a new plant in Brazil to produce viscose fibres used in cigarette filters and fire-retardant materials, while his energy
company, Pacific Oil & Gas, has started work on a 1,400-megawatt gas-fired power plant in Xiamen, China.
In October, RGM agreed to restructure some US$1.4 billion of loans from Bank Mandiri, Indonesia's biggest bank, and other creditors, increasing the principal to be paid back each year.
Bankers frequently pitch new ideas for funding, Tanoto said, but for now he prefers to finance expansion from cashflow and bank loans, rather than equity -- unlike some of the other big Indonesian family groups which have tapped the city-state's share and bond markets in the past year.
"The cashflow is good, the groups are doing well, so we are using self-funding, or a limited group of banks," said Tanoto.
"All projects have a very clear funding plan. Raising equity isn't good, it's expensive." - Reuters