Chain Reaction Research: Indonesian Palm Oil’s Stranded Assets – 10 Million Football Fields of Undevelopable Land
Stranded land is a type of stranded asset. Stranded assets are “assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities.” Due to stranded assets, the Indonesian palm oil industry may be facing a trend of lower growth and equity revaluations. Banks may be left with poor loan collateral when the underlying oil palm concession is recognized as stranded land. Risks and costs for companies and credit and equity investors are likely to increase. This means that landbank expansion – regardless of location – is a high-risk financial strategy.
- 6.1 million ha of forests and peatland are “stranded assets” on the balance sheet of Indonesian palm oil companies as it cannot viably be developed. This magnitude is potentially unknown to investors and bankers. Analysts may be mispricing these stranded assets into current financial valuations.
- 29 percent of Indonesia’s leased out landbank cannot be developed without violating buyers’ No Deforestation, No Peatland, No Exploitation (NDPE) policies. This stranded land is equal in size to ten million football fields.
- NDPE compliant growers may enjoy wider, more secure markets and be able to sell at higher prices. This could render a full transition to NDPE imminent.
- With 365 NPDE policies from traders and consumer goods companies, and new regulations from the Government of Indonesia, analysts need to change their financial modeling techniques to include stranded asset discounts.
- 95 identified palm oil company groups – 35 of which are publicly traded – each hold at least 1,000 ha of stranded land within their concessions.
- 10 percent of Indonesia’s total land has been leased for oil palm concessions in the last 25 years.
For more information, please contact Eric Wakker.