Shares of food manufacturer Tiga Pilar Sejahtera Food fell almost 25 percent on Friday (21/07) after one of its subsidiaries is suspected of fraud. Allegedly, subsidiary Indo Beras Unggul (a rice trader) sold rice under the premium label, while it actually was the cheaper government-subsidized rice that was sold to consumers. Police raided a warehouse of Indo Beras Unggul in Bekasi (West Java) on Thursday evening (20/07), confiscating more than 1,000 tons of rice.
It is currently being investigated whether the company broke Indonesia's consumer protection and food laws. In case found guilty, then Indo Beras Unggul may face a IDR 2 billion fine (approx. USD $150,000), while employees could be sent to prison. In Indonesia premium rice needs to be sold below the price of IDR 20,400 per kilogram, while subsidized price carries a maximum price of IDR 9,000 per kilogram (government regulation that aims to protect the poorer consumer). Furthermore, the case could involve unfair competition and the misinforming of the consumer.
Despite the fact that it remains unknown whether the company is indeed involved in fraud, investors were quick to react resulting in a severe plunge of Tiga Pilar Sejahtera Food shares on the Indonesia Stock Exchange. According to Reza Priyambada, Analyst at Binaartha Parama Sekuritas, this reaction makes sense and was also seen in other similar cases (for example Agung Podomoro Land, Nusa Konstruksi Enjineering, and the MNC Group) where listed companies became entangled in legal issues. Moreover, it can take a long time to recover (regain markets' trust) from such issues. Therefore, there is a real possibility to see Tiga Pilar shares fall further on Monday (24/07) when the market reopens. Past Friday, shares could not fall further than 25 percent as the exchange's auto-rejection system kicked in.
The market is expected to continue selling Tiga Pilar Sejahtera Food shares as long as there are no public statements issued by the company about the continuation of its operations. Investors are currently wondering that with the operations of Indo Beras Unggul being ceased, can the Tiga Pilar Group shift these operations to another unit? Therefore, the management of Tiga Pilar is advised to release a statement to clarify such matters as soon as possible.
Stock Quote Tiga Pilar Sejahtera Food - AISA:
For the moment the company stated that subsidiary Indo Beras Unggul was inspected by Indonesian authorities and that it is fully cooperating - in full transparency - with all of the relevant officials, while also undertaking an internal and external review to ascertain the facts. Jo Tjong Seng, Director at Tiga Pilar, added that Indo Beras Unggul buys its rice from farmers, and does not buy the subsidized rice that is distributed by the government.
This controversial issue could also obstruct the Tiga Pilar Group's plans to list another subsidiary - Dunia Pangan - on the Indonesia Stock Exchange. Earlier, it was reported that this unit plans to conduct an initial public offering (IPO) before the end of 2017. Indo Beras Unggul is actually the direct subsidiary of Dunia Pangan.
Based on Tiga Pilar Sejahtera Food's latest corporate earnings (Q1-2017), the company's total assets stood at IDR 9.34 trillion at the end of March 2017. Meanwhile, revenue fell 12.3 percent year-on-year (y/y) to IDR 1.46 trillion (approx. USD $109.8 million), particularly because the company's rice sales fell 17.2 percent (y/y) due to falling demand from Bulog, Indonesia's state food procurement body.
Tiga Pilar Sejahtera Food's Financial Highlights:
in billion IDR rupiah, unless stated otherwise
¹ in IDR rupiah
Source: Tiga Pilar Sejahtera Food, Annual Report 2016