Will This New Bill In Indonesia Spell The End Of Singapore-Listed Oil Palm Companies?

palm fruit

There’s a new bill currently being discussed in Indonesia which might have very serious consequences for Singapore-listed plantation companies.

Indonesian lawmakers are looking at potentially restricting foreign ownership of plantations to no more than 30%. If the law passes, it might force many of the country’s large plantation owners listed in Singapore – some notable examples include oil palm plantation owners Wilmar International Limited (SGX: F34) and Golden Agri-Resources Ltd (SGX: E5H) – to sell off partial ownerships of their plantations in order to meet new regulations.

Nationalistic laws have already been passed in Indonesia in the banking and mining sectors to protect local outfits. Therefore, there is a real possibility that the aforementioned plantation bill might be passed in the not too distant future. If that is the case, what does it mean for investors in Singapore-listed Indonesian plantation owners?

A serious issue

This is by no means a small issue. Clearly there will be serious consequences for foreign plantation owners in Indonesia if the bill passes. But at the same time, such changes might have big unwanted consequences for Indonesia’s economy itself.

In fact, according to The Star Malaysia, more than 5 million hectares of oil palm land in Indonesia belongs to foreigners with foreign investment in the sector already exceeding S$40 billion. If the influx of such investments were to dry up, it would be a huge blow to the Indonesian economy. There also seems to be a lot of challenges the country has to face in order to fully implement such a policy – and that’s not to mention what’s likely to be only limited positive outcomes which stem from such a change.

The government might benefit more by simply increasing taxes on foreign plantation owners. Currently, Indonesia’s refined, bleached, and deodorised palm oil export duty is at 0% – there’s clearly lots of room for duties and taxes to grow.

It’s all just speculation with nothing concrete

On a bright note, for now at least, it’s still just empty rhetoric regarding the bill to limit foreign plantation ownership. Nothing has been confirmed.

But that said, this is still a huge risk to bear in mind for investors who are interested in plantation outfits in Indonesia. Invest wisely.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns Wilmar International Ltd