Franky Oesman Widjaja - Legacy hangover

The reason Golden Agri trades at a discount to its peers is that “the controlling family has some association with very poor corporate governance”, says ABN Amro’s Tiruchelvam, pointing to the storied bankruptcy of Asia Pulp & Paper. “That has been a weight on the shares.” The Sinar Mas group built one of the largest pulp and paper businesses in the region on a mountain of debt, which eventually led to the collapse of New York-listed Asia Pulp & Paper in 2001. The group’s Bank Internasional Indonesia, which had loaned large sums to related companies such as Asia Pulp & Paper, was hobbled during the Asian financial crisis and had to be recapitalised.

Amid all that, the group took its plantation arm, Golden Agri, public in Singapore in 1999. Almost a decade on, investors haven’t altogether dismissed the past corporate failures of the Widjaja family, whose net worth today is estimated at US$2.8 billion. However, the sector’s golden age, coupled with the company’s move to introduce more transparency through analyst and media briefings, appears to be starting to draw some interest back to the stock. On Feb 20, the company also carried out a one-for-two stock split to improve liquidity for retail investors.

Tiruchelvam does not cover Golden Agri but says the plantation company is a “well-managed enterprise and has a huge land bank”. OSK’s Tai, in his report on the company, reckons that “the company is too big and too significant a plantation player for investors to ignore”.

In recent months, Golden Agri has sent its management to meet with investors in the capital markets of Europe, North America and East Asia. Richard Fung, its director of investor relations, says reception has been positive and that the valuation gap between Golden Agri and its peers “is not as big as it used to be”. At end-2006, Golden Agri traded at a 62% discount to its peers. The figure is currently about 41%.