Interview: Indonesian agri-food company plans bond in 2012

Malindo Feedmill plans to tap bond markets this year for US$40 million to take its expansionary plans a step further into the buoyant Indonesian market, says the chief financial officer.

  • 08 Mar 2012
Email a colleague
Request a PDF

The farm and livestock feeds manufacturer has plans to tap the Indonesian debt markets this year by issuing US$30-40 million of an Indonesian rupiah-denominated bond. These funds will be used for financing purposes in 2013.

“The board is still considering on whether to go for a bond issuance or a term loan this year for the purpose of future expansion for the year of 2013,” said Vincent Lim, a Jakarta-based chief financial officer (CFO) for Malindo Feedmill to Asiamoney PLUS in an exclusive interview on March 7.

Like in 2012, these plans could include the expansion of feed mills, breeder and broiler farms, and further into the food production business.

Malindo Feedmill’s food production facility – which is a new area the company is keen to explore – is expected to commence by the end of the second quarter this year. This facility is mainly used to produce chicken nuggets and sausages for the Indonesian market.

For the rest of the year, the live stock feed manufacturer aims to build an additional feed mill and increase the production capacity of its breeder farms by 15%-20%.

“For broilers we will need to increase the capacity by 30% because we are starting our food facilities soon and we will need broiler meat,” said Lim.

In terms of financing, 30% is from internal cash flow while the remaining 70% comes in the form of term loans facilities from its bankers, which have been very forthcoming in providing financing. The company, whose main bankers are HSBC and CIMB Niaga, is seeking US$20 million-worth of term loans for these few projects.

“Financing for expansion is not an issue,” declared Lim. “We have good support from our old bankers and also new bankers are approaching us to finance our expansion.”

Malindo Feedmill also avoids tapping into long-term US dollar-denominated loans as they are highly volatile.

“For long-term loans, our preference would be in rupiah-denominated currency. The main reason is that our long term cash inflows are in rupiah. US dollars denominated facilities are for working capital purposes. Should we enter into US dollars long-term facilities, then we will do some form of hedging to minimise the risk of fluctuation in currency,” said Lim.

Market challenges

One of the few hurdles that Malindo Feedmill had to overcome in the past few months is managing extreme price volatility in the commodity market.

“Our risk will be mainly from the rising price of commodities – corn and soybeans – and the uncertainty of the US dollar,” noted Lim. “The next thing is increasing cost of oil in the world.”

Corn yields dropped below trend line the last two years, reducing carryover stocks and pushing up prices. Food and Agricultural Policy Research Institute (Fapri) projects planted corn acres this year at 93.5 million acres, up from 91.9 million last year. An assumed normal yield in 2012 reduces per-bushel price to US$4.81, down from US$5.96 for the 2011-12 market year, according to Bloomberg.

Soybean prices topped $13 a bushel for the first time in five months in February as estimates of smaller South American harvests raised expectations that US exports will be in greater demand. Soybean prices for 2012 remain over US$11 per bushel, after averaging an estimated US$11.61 for 2011-12.

The company reduces its volatility exposure in the commodity market by passing the increase in costs down to its consumers, who are primarily farmers.

“Our procurement works on a three to six months basis. So if there is an increase in cost, we will increase the average selling price (ASP) of our feed on a gradual basis,” said Lim. “With that, it will flow back to the farmers slowly, so they can absorb the costs gradually. This has not been an issue.”

The other challenge Malindo Feedmill experiences is the acquisition of land as it is a drawn out process, particularly in Indonesia.

“The land code in Indonesia is still a challenge. If I want to purchase 15 hectares of land for example, I will need to sign agreements with as many as 100 people sometimes. It’s a cultural issue,” said Lim. “This is not much of a challenge for feed mills because these are located in an industrial zone and you only need around five hectares of land.”

However, Indonesia’s House of Representatives approved a long-awaited land acquisition bill in December. The bill is an attempt to break the bottleneck in infrastructure development that has long been seen as holding back growth Southeast Asia’s leading economy.

Based on the law, it set a timeframe for acquiring land, whereby all of the land acquisition process should be finished within a maximum of 436 working days. This includes notification, public consultation and dispute settlement mechanisms that provide legal protection for rightful landowners to get their fair share of compensation.

Compensation is also not limited to money, as rightful landowners can be compensated through land swaps, resettlement, stock ownership or any other forms agreed by both parties.

Forecasting cash flow

In terms of forecasting cash flow, Malindo Feedmill is confident that it will be able to manage and predict it efficiently.

“The general population eat chicken as one of the cheapest protein source…so whatever feed we produce will go to the livestock and as a matter of fact, the demand has picked up,” said Lim. “There will be a will be a constant stream of cash flow coming in. On top of that, we are a food based company, not electronics or garments manufacturer.”

Any spare cash that is obtained is used to fund working capital facilities, including the company’s term loans, maturing bonds and capital expenditure.

“If there is excess, we will put them into fixed deposits or will go into land acquisitions,” said Lim. “Or we can actually look into buying raw materials like corn or soya earlier and pay them off on cash before delivery terms.”

“For the breeding farm, a chicken is not expected to produce anything for the first sixth months of its life cycle. You will need working capital for the breeding operations for the first six month but after that, they will generate the income.”

Malindo Feedmill was established in 1997 and listed on the Indonesian Stock Exchange in 2006. The company is the subsidiary of Malaysian-based Leong Hup Holdings and Emivest, both of which are listed on the local stock exchange.

  • 08 Mar 2012

Bookrunners of International Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 7,478.17 15 15.70%
2 HSBC 7,014.50 19 14.72%
3 Deutsche Bank 5,406.93 10 11.35%
4 JPMorgan 3,627.15 9 7.61%
5 Bank of America Merrill Lynch 2,414.03 9 5.07%

Bookrunners of LatAm Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 3,783.77 4 20.92%
2 HSBC 3,266.83 3 18.06%
3 Deutsche Bank 2,977.43 1 16.46%
4 JPMorgan 1,766.98 6 9.77%
5 Bank of America Merrill Lynch 1,683.06 6 9.31%

Bookrunners of CEEMEA International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 15 Jan 2018
1 Citi 3,111.25 5 23.30%
2 HSBC 2,253.75 3 16.88%
3 Deutsche Bank 1,520.23 3 11.39%
4 Sumitomo Mitsui Financial Group 1,341.03 2 10.04%
5 Standard Chartered Bank 1,291.27 1 9.67%

EMEA M&A Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 02 May 2016
1 JPMorgan 195.08 50 10.55%
2 Goldman Sachs 162.26 37 8.77%
3 Morgan Stanley 141.22 46 7.64%
4 Bank of America Merrill Lynch 114.20 33 6.18%
5 Citi 95.36 35 5.16%

Bookrunners of Central and Eastern Europe: Loans

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 ING 3,668.64 29 9.07%
2 UniCredit 3,440.98 25 8.50%
3 Sumitomo Mitsui Financial Group 3,156.55 13 7.80%
4 Credit Suisse 2,801.35 8 6.92%
5 SG Corporate & Investment Banking 2,478.18 21 6.12%

Bookrunners of India DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 AXIS Bank 51.86 2 27.57%
2 Standard Chartered Bank 45.42 1 24.14%
2 Mitsubishi UFJ Financial Group 45.42 1 24.14%
2 CITIC Securities 45.42 1 24.14%
Subtotal 188.11 3 100.00%