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New Forests fund takes 35% stake in Indonesia forestry plantation

The $170m fund has invested in a forestry concession in Indonesia, and plans to make a second in Indo-China early next year.

New Forests’ Tropical Asia Forest Fund LP (TAFF) has purchased a 35 percent stake in PT Hutan Ketapang Industri (HKI), which manages a 100,150 hectare plantation forestry concession area in Ketapang regency, West Kalimantan province, Indonesia.

TAFF is a $170 million investment fund backed by institutional investors, including European pension funds, development banks, and a European and a North American funds of funds. New Forests says it is the first dedicated institutional forestry fund in south-east Asia.

The European development banks the Danish Development Bank, FinnFund and the Netherlands Development Finance Company have a combined 20 percent of the fund, New Forests chief executive officer David Brand told Agri Investor.

PT Hutan Ketapang Industri was formed as a joint venture partnership between New Forests and Indonesian-listed company Sampoerna Agro.

The investment will enable HKI to expand the rubber plantation from the current 9,000 hectares to more than 30,000 hectares and will introduce additional conservation management areas throughout the concession. The rubber will mainly go into the tyre industry, but will also be used to make products like latex gloves, said Brand.

TAFF is managed by New Forests with a mandate to invest in and establish a portfolio of high-quality sustainable timber plantations in tropical Asia and a focus on increasing asset value through improved management.

“There are strategies that we use when we work in forest cultivation and protection of certain areas, especially wetland and peatland,” Brand told Agri Investor, adding that Sampoerna Agro is a member of the Roundtable on Sustainable Palm Oil.

The area to be cultivated, Brand said, is “mainly land that would have been repeatedly burned and degraded into a kind of grassland”.

“The traditional timberland investment model was just to buy assets and put them into a special purpose vehicle, outsourcing operations. We will not go into a project that does not have sustainability benefits, so even in degraded areas, if natural forest can be recovered … we will protect it.”

After 15 to 20 years of tapping the trees, they will be cut down and harvested for timber.

TAFF closed in June 2013, and the fund made its first investment the same year in timberlands in northern Sabah, Malyasia.

“We are continuing to expand that investment. It was an acacia plantation, and we are harvesting the acacia and replanting it with eucalyptus trees which are more valuable,” said Brand.

“It looks like our third investment will be in the Indo-China region and with advanced due diligence we hope to close that project in the next couple of months.

“Then we have a couple of other deals that we are working on, particularly a teak transaction and another eucalyptus transaction, so we are looking at a portfolio ultimately of different tree species in three or four countries that will give us all the different market exposures.”

New Forests closed its first regional timberland investment fund, the A$490 million ($355 million; €324 million) Australia New Zealand Forest Fund, in October 2010 and followed it with the $707 million Australia New Zealand Forest Fund II in 2014. That fund is now two-thirds invested, and New Forests will be raising their third funding round early next year, said Brand.

Founded in 2005, New Forests offers institutional investors targeted opportunities in the Asia-Pacific region and the United States and has more than A$2.75 billion in assets under management. It is headquartered in Sydney with offices in Singapore and San Francisco.

“Everything in Asia-Pacific is intertwined. A lot of the Australian eucalyptus plantations are being exported to China and Japan, the same for our Malaysia investments, exporting into China, Vietnam, Indonesia and the Philippines. So you have continuous markets and some of our products are market substitutes, some of them are complimentary,” said Brand.

“As a company with an office in Sydney and Singapore we can offer investors exposure to both regions. But we would separate them into two different funds, because the risk return profile is quite different.”