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ublicly-listed paper producer PT Pabrik Kertas Tjiwi Kimia Tbk expects to raise about Rp 1.3 trillion (US$108.4 million) from a rights issue later this month, the company'€™s top executive said.

Speaking to reporters following the shareholders meeting Thursday, Tjiwi Kimia director Suhendra Wiriadinata said that the company planned to use the proceeds as additional capital for its new joint venture PT OKI Pulp and Paper Mills in South Sumatra.

With the additional capital, Tjiwi Kimia'€™s shares in OKI Pulp would increase to 48.55 percent from 47.58 percent. PT Pindo Deli Pulp and Paper Mills holds 48.55 percent and PT Muba Green Indonesia owns the remaining 2.91 percent.

The company, which is controlled by the Sinar Mas group, will issue 1.3 billion new shares, each with a nominal value of Rp 1,000, during the limited public offering from July 10 to July 17.

The plan was formally approved by shareholders during the shareholders meeting.

Oki Pulp plans to build a pulp and paper plant with total investment of about $2.6 billion.

'€œThe factory will be built in the Ogan Komering Ilir regency in South Sumatra,'€ Suhendra said. The plant, which will have the capacity to produce 2 million tons of paper per year, is expected to begin commercial production in the second quarter of 2016.

Suhendra said about 70 percent of the required investment would be funded by a loan from the China Development Bank (CDB). The remaining 30 percent would be from the three Oki Pulp shareholders.

The new plant will produce short-fiber pulp to support Tjiwi Kimia'€™s business, as 85 percent of its paper is derived from short-fiber pulp.

Currently, Tjiwi Kimia receives short-fiber pulp from its sister company PT Indah Kiat Pulp and Paper Tbk. Short-fiber pulp is a major raw material, while long-fiber pulp is added to strengthen paper composition.

Tjiwi Kimia has its own production factory in Mojokerto, Sidoarjo, East Java which has a production capacity of 1.22 million tons of paper.

Aside from the rights issue plan, Tjiwi Kimia also plans to allocate up to $50 million in capital expenditure (capex) for 2014, which will be used to upgrade its power plants, as well as purchase new machinery for its Mojokerto plant.

Most of its capex will be obtained from internal funds and bank loans.

Tjiwi Kimia earned a net profit of $10.96 million in the first quarter (Q1) of 2014, which was a 24.8 percent decrease from $14.7 million earned in the Q1 of 2013. Suhendra attributes the decrease to the fluctuating exchange rate between the rupiah and the US dollar. Total revenues reached $319.70 million in the same period this year.

The company earned a total net profit of $1.2 billion in 2013, a 7.5 percent decrease from 2012'€™s net profit of $1.3 million. The company produced 964,000 tons of paper in 2013, which were mostly exported abroad. (dyl)