Indofood to spend Rp 6.4t on expansion

JAKARTA. Top local food maker PT Indofood Sukses Makmur (INDF) says it has earmarked Rp 6.4 trillion (US$697.6 million) for capital expenditure (capex) to increase capacity this year.

Indofood will use the funds to acquire 20,000 hectares in Sumatra and Kalimantan for plantations to produce cooking oil and margarine, and to build a new flour mill and noodle factory, Indofood director Thomas Tjhie told reporters on Thursday.

Another Indofood director, Werianty Setiawan, said that half of the capital expenditures would be allocated for agribusiness, also announcing that the company would offer Rp 2 trillion in debt papers at a coupon rate between 7 and 7.5 percent later this month.

The company currently has 255,000 planted hectares and five refinery plants producing 1.4 million tons of crude palm oil (CPO), rubber and sugarcane a year.

About Rp 2.3 trillion of the money earmarked for capital expenditures would go to the firm’s full range of consumer branded products (CBP), Werianty said.

Indofood’s publicly listed subsidiary PT Indofood CBP runs its instant noodle and dairy businesses, producing nationally renowned brands such as Indomie, Supermi, Indomilk and Orchid Butter.

The firm’s new instant noodle factory would boost Indofood’s capacity from 15.8 billion packages per year at present. Indofood, which is also the world’s largest instant-noodle maker, currently operates 15 instant noodle factories in Indonesia and one in Malaysia.

Meanwhile, the new flour mill will supplement Indofood’s two existing mills in Jakarta and East Java, which have a combined annual production capacity of 3.3 million tons.

The company’s flour business, which produces of bread, noodles, cakes and pasta, operates under the so-called Bogasari group.

“We will disclose the new Boga- sari [mill] later,” Thomas said.

Indofood executives stopped short on elaborating on the impact of the company’s expansion plans to lift capacity from current levels. The company has been growing steadily over the past few years with a compounded annual growth rate (CAGR) of 12.9 percent from 2007 to 2011.

Demand for food will remain strong for Indonesians, whose consumption drives more than 50 percent of the nation’s rapidly growing economy, analysts have said.

Indofood’s cash position stood at Rp 13.05 trillion at the end of 2011, reflecting the company’s ability to fund its expansion needs.

“The capex will be fully funded from internal cash because we have strong cash balance,” Werianty said.

However, Indofood will still need to offer bonds to refinance its maturing debt of Rp 1.96 trillion this year from a 2007 bond issuance.

Five underwriters have been appointed to arrange sales of the new five-year bonds: PT Mandiri Sekuritas, PT Kim Eng Securities, PT DBS Vickers Securities Indonesia, PT Indo Premier Securities and PT CIMB Securities Indonesia.

“The offering period will be from May 25 to 28,” Mandiri Sekuritas managing director Imam Rachman said.

The bonds were rated idAA+ with stable outlook from local ratings agency PT Pemeringkat Efek Indonesia (Pefindo).

“The coupon rate of between 7 and 7.5 percent reflected the rating and is based on the current market condition,” Indo Premier’s head of investment banking Rayendra Tobing said.

Indonesian companies have been benefiting from by Bank Indonesia’s (BI) lowest ever benchmark interest rate which brings down costs of borrowing to ease their expansion needs.

Shares in Indofood traded at Rp 4,800 apiece on Thursday, down 0.52 percent from the prior day. (Esther Samboh, The Jakarta Post)