Indonesia’s largest listed food and beverages company PT Indofood Sukses Makmur will go ahead with a plan to expand its palm oil business despite Citigroup’s recent decision to stop its financing facilities for the company.

Indofood director Thomas Tjhie said Citgroup’s move would not affect his company’s palm oil expansion agenda. “We have no problem with the cancelation,” he told the press in Jakarta on Wednesday, adding that the company had used a small part of Citigroup’s credit facility.

Thomas said a number of foreign and domestic banks would continue to provide funds for Indofood subsidiary PT Salim Ivomas despite the withdrawal of Citigroup.

According to Indofood’s June 2019 financial statement, Indofood has received loans from Japanese lender MUFG Bank, Dutch lender Rabobank as well as private lenders Bank Tabungan Pensiunan Negara (BTPN), Bank Central Asia (BCA) and state-owned Bank Mandiri.

Citigroup announced in June that it was canceling its credit facility worth US$140 million for Indofood after PT Salim Ivomas Pratama (SIMP) withdrew from the international palm oil certification scheme, the Roundtable on Sustainable Palm Oil (RSPO), in January last year.

The withdrawal came after SIMP disagreed with the certification organization’s investigation of its subsidiary, publicly listed palm oil producer PT PP London Sumatra (Lonsum), over alleged labor rights violations on its plantations. The RSPO suspended the firm’s sustainability certificate.

Even though its parent company had lost the financing option from Citigroup because of its decision to withdraw from the RSPO, SIMP appears to have no plans of getting back its certificate.

Vice president Paulus Moleonoto said it opted to comply with the Indonesia Sustainable Palm Oil (ISPO) certification instead, given the fact that the local certification scheme was mandatory for every palm oil producer in the country.

Royal Investium Sekuritas analyst Janson Nasrial told The Jakarta Post on Friday that the company’s withdrawal from the RSPO did not really impact foreign investors’ views of SIMP. The company has been under selling pressure from foreign investors in the past several months. As of Friday, net foreign sales had reached Rp 108.57 billion. But Jason said the sell-off was mainly due to worsening financial results.

In the first half of this year, SIMP recorded a loss of Rp 310.17 billion as its revenue fell 0.76 percent year-on-year (yoy) to Rp 6.5 trillion due to the fall in the crude palm oil (CPO) price this year.

Janson said the RSPO issue also hardly affected foreign investors’ perception of its parent company, Indofood, as the publicly listed firm depended heavily on processed food products rather than palm oil products.

Losing the line of credit from Citigroup also did not mean that Indofood would halt its plan to expand its palm oil business, as the company had allocated Rp 1.8 trillion ($127 million) this year to increase its engagement in the segment, including by building a factory in Central Kalimantan.

SIMP director Johnny Ponto said the new production facility was needed to accommodate increasing output from its oil palm plantations.

“This new production line will have a capacity to process 45 tons of fresh fruit bunch per hour, which can be increased to 60 tons,” he said. The new production facility, he continued, could also increase the firm’s CPO production by about 5 to 8 percent from last year’s 921,000 tons.

Johnny went on to say that construction of the new factory, which would be the firm’s 27th palm oil factory, was expected to be completed by the fourth quarter of this year.

As the government conducted a trial for the mandatory use of a 30 percent biodiesel blend (B30), Paulus added, SIMP was mulling over an expanding of its business from cooking oil to fuel.

“It’s a huge opportunity for us and also for other palm oil producers in Indonesia, but we’re still considering the production of biodiesel,” he said.

Even though SIMP’s palm oil subsidiary, Lonsum, had no plans to build a new factory this year, president director Benny Tjoeng said the company would use its capital expenditure (capex) of Rp 550 billion this year to strengthen its operations.

“We’ve used Rp 280 billion of our capex in the first half of this year, 48 percent of that was used for oil palm upkeep and replanting,” he said.

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