A man who was born in 1922 could be driving this year’s hottest stock. Golden Agri Resources is up 33% year to date, making it one of the Singapore Exchange’s top performers.
The company’s late founder, Era Tipta Widjaya, had at least 40 children. But, Widjaya, who died in 2019, planted many more seeds. His holding company was the Sinar Mas Group, a sprawling empire with interests in plantations, paper and finance.
He was the man behind Golden Agri’s 578,000 palm oil land bank. The company’s plantations are eight times the land mass of Singapore.
Like many Indonesian billionaires, Widjaya made his fortune the hard way. His roots can be traced to China.
The family migrated to Sulawesi. At the age of 15, Widjaya began selling biscuits on the streets. The tenacious youth rose at dawn and ended his day at dusk. With every rejection, his determination rose exponentially.
He was still a teenager when World War II broke out. The Japanese occupied Indonesia in 1939. Like the Ukraine war, WWII disrupted trade. There were shortages. It was a golden opportunity for traders.
The Allies had embargoed Japanese-held Indonesia (then known as Dutch East Indies). Basic items like cooking oil were scarce. But, 19-year-old Widjaya was able to source it. Cooking oil was his rice bowl.
Emboldened by his cooking oil trading, Widjaya tried palm oil planting in 1970s. Indonesia’s vast land bank was an ideal opportunity. It was one of the few countries in the world that had the resources and climate for palm oil. Palm oil cultivation needs at least five hours of sunshine per day, as well as 80% humidity. Widjaya got logging concessions from the Suharto regime.
Widjaya understood the value of brands. In the 1980s, he set up Bimoli, Indonesia’s largest cooking oil supplier.
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Palm oil was not the sole business line in Widjaya’s empire. The logging rights were used to build Asia Pulp & Paper (APP). It became the world’s biggest paper producer. At its peak in the late 1990s, APP produced a fifth of the world’s paper. The empire included a bank — Bank Internasional Indonesia (BNI). Most of the Sinar Mas profits were from APP.
By 1997, Widjaya was at the pinnacle of Asian business. He was ranked as the fifth richest person in Indonesia.
Then, calamity struck. The Indonesian rupiah collapsed from IDR2,000 to IDR15,000 against the US dollar that year. This was a 87% depreciation.
APP, the jewel in Widjaya’s crown, had US$14 billion in debt. Much of its revenue was in rupiah. The debts were impossible to service. The 1997 economic collapse was a huge blow to Sinar Mas.
APP went bust in Asia’s biggest bankruptcy. The creditors spent years fighting for the scraps.
However, Golden Agri was kept intact. The planted hectarage has more than tripled since 1997.
The last decade has been unkind to palm oil. Palm oil prices dropped from US$1,000 per tonne in 2012 to US$450 in 2020. At the bottom in 2020, palm oil prices were barely sufficient to meet the cost of sales and service the debt.
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The industry has been tainted as an environmental, social and governance (ESG) abuser. Concerns were and continue to be raised about the destruction of the natural rainforests. Environmentalists like Greenpeace waved placards outside Golden Agri’s customers. It was alleged that Golden Agri was killing the orangutans. Many fund managers were averse to investing in it.
Golden Agri has taken measures to smarten its act. It is part of the Roundtable on Sustainable Palm Oil (RSPO). It is committed to sourcing palm oil that is ESG-certified — green palm oil.
However, a perfect storm is brewing for palm oil. Planting has been weak in the last decade. The recent commodity price boom has been a godsend for the industry. Palm oil prices are now at record highs of US$1,700 ($2,336), which is more than five times the cost of sales. Demand is about to take off.
The fuel that would power palm oil’s ascent is Indonesia’s export ban. It would favour companies with refining capacity like Golden Agri. Golden Agri processes about 2 million tonnes of palm oil a year. Most of the capacity is in Indonesia itself.
Last week, Golden Agri recorded its highest-ever profits. There could be more good news to come. Though it is up 51% year to date, it is at less than half its 2010 peak.
Widjaya faced war and bankruptcy, but prevailed. He would be proud of the seeds that he planted.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in these columns
