Malaysian plantation firms face growing regulatory risks as Indonesia seizes land lacking forestry permits or in violation of land-use law, CIMB Securities flagged
The seizures are negative for upstream plantation companies with estates in Indonesia, such as SD Guthrie Bhd (KL:SDG), Kuala Lumpur Kepong Bhd (KL:KLK), IOI Corp Bhd (KL:IOICORP) and Genting Plantations Bhd (KL:GENP), as they signal increasing regulatory risks, said the house in a note on Thursday.
The move may also trigger heightened environment, social and governance (ESG) scrutiny from investors — particularly over land legality, deforestation risks, and certification compliance — while raising concerns over future regulatory shifts and higher risk premiums for companies with exposure in Indonesia.
“Our conversations with Malaysian plantation companies under coverage suggest that the potential financial impact of Indonesia’s forestry land status issue on their planted oil palm estates is unlikely to be significant, based on their initial assessments. However, these companies are still seeking further clarity, indicating that regulatory risks persist for their Indonesian operations, ”CIMB said in a note to clients.
Genting Plantations made a RM66 million provision in the first quarter ended March 31, 2025 to account for potential income loss from portions of its Indonesian estates that had been demarcated as forest land by the Indonesian government under a recent regulation, according to CIMB.
CIMB’s analysis of Indonesia’s Minister of Forestry Decree No 36/2025 — which lists oil palm firms operating illegally in forest areas without permits — shows the companies fall into two groups: those under the legalisation process after applying before the Nov 2, 2023 deadline, and those rejected for non-compliance.
The research house found that Indonesian subsidiaries of Genting Plantations, KLK, and SD Guthrie are listed in the decree.
It said Genting applied to legalise 18,448 hectares (with 13,365 hectares under the legalisation process and 4,464 hectares rejected), KLK for 4,368 hectares (1,800 hectares under process, 1,368 hectares rejected), and SD Guthrie for 3,045 hectares (1,874 hectares under process, 1,171 hectares rejected).
IOI Corp’s 32%-owned associate Bumitama Agri applied for 30,115 hectares, of which 29,975 hectares are under the legalisation process and 5,570 hectares were rejected.
Reuters on Wednesday reported that the Indonesian government had transferred 394,547 hectares of seized oil palm plantations to Agrinas Palma Nusantara — a newly established state-owned palm oil company formed in January under President Prabowo Subianto’s administration. This brings the firm’s total managed land area to over 833,000 hectares.
The seized land — previously operated by 232 unnamed private companies — primarily involves plantations developed within designated forest zones without proper permits or in breach of land-use laws.
Source : The Edge Malaysia