Indonesian state-owned fertilizer company PT Pupuk Kalimantan Timur is reported to be in talks to acquire the fertilizer business of ASX-listed Incitec Pivot Ltd. (IPL), according to a Reuters report, citing two unnamed sources familiar with the matter.
Pupuk Kaltim has engaged both Citi and Gilbert+Tobin as advisors on the potential acquisition, the Australian Financial Review reported on July 23, citing unnamed sources. The Indonesian company is “actively” looking for overseas acquisition opportunities, particularly phosphate and potash assets, to support Indonesia’s long-term food security, Pupuk Kaltim President Director Rahmad Pribadi said in a May interview with NikkeiAsia .
IPL, which commands a market value of A$5.4 billion (approximately US$3.65 billion at current exchange rates), declined to comment on the reports beyond an ASX statement issued on July 12, confirming that it had “received a number of approaches for the potential acquisition of its fertilizers business” (GM July 14, p. 1).
IPL declined to identify any interested parties, but the Australian Financial Review revealed on July 11 that at least one Asia-based state-owned enterprise – at the time speculated to be Pupuk Indonesia – has shown interest in buying Incitec Pivot Fertilisers.
In its July 12 statement, IPL also said its Board’s assessment of a potential sale is being considered along with the ongoing proposal to structurally separate Incitec Pivot Fertilisers and the Dyno Nobel explosives business.
But IPL is facing investor opposition to its plans to demerge, with multiple investors warning that rising interest rates and tougher business conditions would make survival harder for the two smaller businesses with higher capital costs, the Australian Financial Review reported.
Pupuk Kaltim’s reported talks with IPL come as the Kalimantan-based producer has committed at least $1.5 billion on expansion plans, after two straight years of record profits, to meet rising demand resulting both from the Ukraine war and lingering effects of the coronavirus pandemic.
Pupuk Kaltim, which is 99.99% of owned by PT Pupuk Indonesia, is already Indonesia’s largest ammonia and urea producer and one of the largest fertilizer producers in Southeast Asia. The company posted 14.5 trillion rupiah ($964 million) in net income last year, more than double the approximately 6 trillion rupiah reported in 2021, which was already higher than pre-pandemic levels, according to the NikkeiAsia report, citing Pribadi.
Currently, Pupuk Kaltim’s biggest expansion project is a new complex costing more than $1 billion in Fakfak regency in Indonesia’s West Papua province. Construction is slated to start in the third quarter of this year, with commercial operations targeted for 2027. The new facility will produce 1.1 million mt/y of urea and 825,000 mt/y of ammonia, with the Indonesian government describing the project as of “national strategic” importance.
Pupuk Kaltim currently has 13 plants located in a huge production complex in Bontang, East Kalimantan province. Current output is put at some 3.4 million mt/y of urea, 2.7 million mt/y of ammonia, and 300,000 mt/y of NPK, NikkeiAsia reported. The company’s exports have overtaken domestic sales as it entered several new markets, including Australia for urea, Japan for ammonia, and South America.
Pupuk Kaltim has yet to decide whether to launch a domestic initial public offering (IPO) this year or in 2024 due to global capital market situation and geopolitical uncertainties, according to NikkeiAsia, citing Pribadi. Local media reported in early January that the company was planning an IPO of between $500 million and $1 billion amid the Indonesian government’s push for some state-owned companies to privatize (GM Jan. 6, p. 29).