Sago-Based Forestry Plantation & Starch / Bioethanol Industry

Sago-Based Forestry Plantation & Starch / Bioethanol Industry

Investment Highlights

Industry/sector :

1. Food (Starch)
2. Renewable / alternative energy (Bio Ethanol)

Stage/transaction type : Fund raising to fund new projects

Current shareholder : Privately owned by the founder

Management : Capable management is in place. The management has been engaging in cassava based industry, hence having relevant expertise and experiences. The management is backed by technical expertise from academic institutions and the state-owned National Agency for the Assessment and Application of Technology (or Badan Pengkajian dan Penerapan Teknologi or BPPT for short).

Unique selling proposition:

• Plantation project with no requirement of doing an initial planting because its feedstock is abundantly available in the form of natural sago (Metroxylon sagu Rottb.) forest, a palm family tree with high starch content.

• The company has obtained the license from local government to manage approximately 20,000 hectares of natural sago forest in the eastern part of Indonesia.

• The company has also got the support from local society in form of an Agreement Letter to optimize the use of this natural forest for higher value-added products. The Agreement Letter gives the company rights to manage the natural sago forest for 30 years, and the company will give compensation to the local society as per sago tree cut basis.

• The project offers an excellent combination of commercial and financial feasibility and many positive environmental and social aspects, including preservation of biodiversity and original forest, greenhouse gas reduction, poverty elevation and community development.

• The sponsor has also received a purchase order for its sagobased starch which practically absorbs 100% of the planned capacity to be built.

Industry / macroeconomic aspects

• Worldwide starch production is about 71 million Metric Tons in 2010, and demand increases by 4% per annum. As one of the major food commodity, increase in demand for starch continues to be steady.

• Due to recent climate change and abnormalities of weather in Russia and some other wheat producing countries, wheat starch production is declining in 2010, thus causing sharp increase of starch prices.

• In the region, demand for tapioca starch has brought tapioca price to reach a record high of US$ 490 /MT. Meanwhile, average tapioca starch price in 2010 is US$ 460 /MT. Whereas, our sago starch is competitively priced at US$ 300 /MT.

• Starch has a variety of use, in food and beverage industry, paper making and plywood industry, glue and adhesives, filler in oil and gas industry, garment industry, etc, as well as a variety of downstream products, i.e. glucose / fructose (sweetener), dextrin and maltodextrin, ethanol, acetic acid, etc.

• Worldwide ethanol production is about 19 billion gallon in 2009, or an increase by more than 10% p.a. and posts the strongest growth among bio-fuel commodities.

• The Indonesian government has issued a decree in 2006 and 2008 that requires a 3% bio-fuel blending in 2010.

• Based on the estimated gasoline consumption Indonesia in 2010 of 20.6 million kl/yr, this decree translates to a bio-fuel demand of 610,000 kl/yr vis-à-vis local fuel-grade bio-ethanol
production capacity of only 93,000 kl/yr.

• The government guarantees the minimum buying price of biofuel for this blending will be set monthly referring to average ARGUS price for the previous month + 5%.

Foreseeable Development:

• Upon the completion of the starch mill and the bioethanol production facility, the next development will be to build a Biogas waste-to-energy facility to bring the project into an energy self-sufficient status.

• The factory capacity is scalable and expandable because raw material availability far exceeds the initial planned capacity.

• The company could develop similar projects in other locations because it has been repeatedly requested by many other local governments having similar resources to replicate the concept.

Investment Considerations

Size : ~USD8.5 million project costs, to build a 200 MT/day starch mill
~USD17 million project costs, to build a 150 kL/day bioethanol brewery
Valuation : Project cost plus premium
Exit scenario : IPO, trade sale
Est. return : Project IRR of around 40%

Financial Projection
In US Dollars Year 1 Year 2 Year 3
Revenue 10,500,000 29,812,500 42,001,875
EBIT 2,938,246 9,529,598 13,462,314

Additional Key Information
The sponsor has expressed the need to look for INVESTMENTS and/or LOANS for the project.

Wibowo Yoso, +62 816 954 496, (Chinese / Mandarin)
Eri K. Widjaja, +62 855 102 0468, (English)