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Publication Date: August 25, 2020
DOI: 10.14738/abr.88.8922.
Saratian, E. T. P., Arief, H., Ramli, Y., & Soelton, M. (2020). Moody's Rating For Palm Oil Plantation Companies In Papua, Indonesia.
Archives of Business Research, 8(8). 262-280.
Moody's Rating For Palm Oil Plantation Companies In Papua,
Indonesia
Eko Tama Putra Saratian
Management, Faculty of Economics and Business,
Universitas Mercu Buana, Indonesia
Harefan Arief
Management, Faculty of Economics and Business,
Universitas Mercu Buana, Indonesia
Yanto Ramli
Management, Faculty of Economics and Business,
Universitas Mercu Buana, Indonesia
Mochamad Soelton
Management, Faculty of Economics and Business,
Universitas Mercu Buana, Indonesia
ABSTRACT
Papua is one of the regions that currently receives a lot of investment
in plantations and palm oil commodity processing, which previously
only focused on Sumatra and Kalimantan. One of the reasons for
investment in agribusiness to attract investors and the government is
the contribution of the agricultural sector to Gross Domestic Product
(GDP), which is around 13.96% in the third quarter of 2017, so that the
agricultural sector is one of the second largest contributors to GDP
after the manufacturing industry. The agricultural sector is dominated
by the plantation sub-sector, where the largest plantation production
in Indonesia is palm oil, and Indonesia is the world's largest exporter
of palm oil. The objectives of this research are to find out whether
investment in oil palm plantation and processing in Papua falls into the
"investment" category in Moody's rating and to find out how to make
investment in plantations and oil palm processing in Papua fall into the
"investment grade" and / or category. can increase the rating through
Moody's. This study uses a quantitative research approach.
Participants in this study used a purposive sampling technique, where
the data collected was obtained from primary data and secondary data.
Analysis of the data used in this study is Moody's rating analysis. Data
processing is carried out by conducting a spreading assessment of the
company's financial statements for the last 3 years to obtain values for
historical ratio assessment variables and balance sheet factors, as well
as by conducting an assessment of industry / market, company and
management variables. After all the input and analysis is carried out,
the output is obtained in the form of an investment feasibility rating
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"B2" with the risk category "Medium Risk". Thus, the company is
classified as "investment grade" or feasible for investment, but the B2
score is included in the lowest investment grade category, so
improvements are needed so that grading increases and attracts
investors. For future researchers, it is advisable to conduct research on
a wider sample coverage and emphasize corporate actions that must be
carried out.
Keywords: Investment Grade; Moody’s Rating; Palm Oil Plantation;
Sustainable Finance.
INTRODUCTION
According to the news quoted from Sawitwatch.or.id (2018), the Eastern Indonesia Region is one
of the areas that currently receives a lot of investment in plantations and processing of palm oil
commodities. Papua is one of the regions where until now the expansion of oil palm plantations
has continued to grow. The vast forests of Papua and the high value of biodiversity make this area
the Main Tropical Forest. According to beritasatu.com (2015), forest areas in Papua are one of the
target areas for conservation and accelerating development and increasing the added value of oil
palm in the global market.
Secondary data compilation collected by WWF Indonesia shows that as of 2014, as many as 30
companies in seven districts in Papua Province have obtained principle permits from the Ministry
of Forestry and around 24 companies have obtained plantation business permits (IUP) from the
Ministry of Agriculture to immediately realize their business stages. He said that investment in oil
palm plantations in Papua is expected to boost the regional economy, without forgetting
environmental preservation and the wisdom values of the indigenous Papuan people. According to
Saratian and Arief (2018), environmental and social issues are an equally important concern in
business activities as the triple bottom line concept.
According to the news quoted from sawitwatch (2018), at the policy level, the government
provides opportunities for massive expansion such as; Ministerial Regulation No. 26 of 2007
concerning guidelines for plantation business permits (expanding the area of permits from 20,000
Ha to 100,000 Ha per company in one province for plantation palm oil) and the Minister of
Agriculture Regulation No. 14 of 2009 on guidelines for the use of peatlands for oil palm
cultivation) which allows conversion of all peatlands of up to 3 meters for oil palm plantations. Not
only that, the Indonesian Parliament has initiated the Palm Oil Bill which will provide fresh air
through various incentives, both fiscal and non-fiscal, for the industry to continue to expand its
investment. In the financial sector, several financial institutions and banks are ready to provide
credit for this oil palm plantation sector, both for the upstream and downstream sectors of
processed palm oil products.
Based on data from the Ministry of Environment and Forestry (2018), Indonesia's forest cover in
April 2018 was 125.9 million hectares or 63.7% of Indonesia's land area. One of the agricultural
sub-sectors with a large enough potential is the plantation sub-sector. Based on data from the
Ministry of Industry (2018), the contribution of the agricultural sector to Gross Domestic Product
(GDP) is around 13.96% in the third quarter of 2017, so that the agricultural sector is one of the
second largest contributors to GDP after the processing industry. The largest contributor to the
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Saratian, E. T. P., Arief, H., Ramli, Y., & Soelton, M. (2020). Moody's Rating For Palm Oil Plantation Companies In Papua, Indonesia. Archives of Business
Research, 8(8). 262-280.
agricultural sector is dominated by the plantation sub-sector. The largest plantation production in
Indonesia is palm oil, and Indonesia is the world's largest exporter of palm oil. Based on GAPKI
data (2018), production of Crude Palm Oil (CPO) in 2017 reached 38.17 million tons and Palm
Kernel Oil (PKO) 3.05 million tons, so that the total total of Indonesian palm oil in 2017 was 41.98
million tons. This figure shows an increase in production of 18% when compared to the 2016
production of 35.57 million tonnes, consisting of CPO of 32.52 million tonnes and PKO of 3.05
million tonnes. According to tuk.or.id (2017), palm oil derivatives provide a sizeable export
contribution and become one of the largest contributors to the country's income.
According to sawitwatch (2018), this big push was mainly triggered by the increase in world
vegetable oil demand, where palm oil is one of the most economical sources of vegetable oil, both
in terms of production and processing. In addition, more than 100 derivative products can be
produced which are not only for food needs, but for cosmetics, cleaning, and even biofuels. So, it is
not surprising that the position of palm oil is very difficult to replace by the agro sector of other
vegetable oil producing commodities. Papua Provincial Government data states that the current
area of oil palm plantations in Papua is 958,094.2 ha (excluding West Papua). And the largest area
is in Merauke Regency and Boven Digoel Regency. The area of this oil palm plantation will continue
to increase considering there are limited land in other areas such as Sumatra and Kalimantan,
besides that there is a policy that will expand oil palm plantations in Papua to reach 5 million
hectares.
Quoted from infosawit (2017), Head of the Sawit Watch Campaign Division, Maryo Saputra stated
that the current area of oil palm plantations in Papua province will continue to grow, considering
that the forest area in Papua is also quite large. This situation creates a big dilemma, where on the
one hand Papua really needs a development plan and investment which is expected to be able to
raise the livelihoods of Papuan people so that they can be more prosperous and increase by
working in oil palm plantations, both as laborers and as plasma farmers. Oil palm production is
seen as a means to promote economic improvement, poverty reduction and livelihood
improvement through related jobs and wages, but without good planning and integrated with
policies, the biggest beneficiaries will still be obtained by the key players in this industry. According
to Saratian and Arief (2018), oil palm plantation expansion cannot be separated from oil palm
investment financed by banks and investors.
Even though there is a large investment potential in the palm oil industry in Papua, investors still
need an initial assessment to ensure that the business is included in the investment grade through
a rating assessment. According to Afrizawati (2011), by including Indonesia as part of the
investment grade, it is hoped that it can contribute to the progress of overall economic growth,
both domestic and foreign investment. Companies and investors must remain cautious about
rating changes so that decisions can be made appropriately (Darmesti, 2014).
Rating is a standardized assessment of the ability of a country or company to pay its debts. The
rating of a company can be compared with other companies so that it can be distinguished who has
the better ability. According to Azanil et, al. (2015), the higher the rating, the company is considered
capable of fulfilling its obligations on time. Conversely, the lower the rating of a company, the
higher the risk of default and/or investment returns. In investment, rating is one of the most
important things because it determines whether a company can get funding from the issuance of
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bonds or credit from banks. A change in rating can be one of the factors affecting the direction of
investment. A high rating turns out to be influential for many things. For example, it can encourage
an increase in direct investment from abroad (Foreign Direct Investment) and indirect investment.
In general, investors will seek information before making investment decisions in certain countries
and specifically on certain investment instruments. This is done to find out how high the risk to be
borne and how high the investment return is expected to compensate them for the risks they have
to bear. Mardaconsista and Soelton, 2018; Amran, 2016; said that the profitability ratio will affect
the rating level of a company. Christine and Elizabeth, 2017; Ramli and Soelton, 2018;
Mardaconsista and Soelton, 2018; added that the current ratio, return on assets, debt to equity
ratio and total asset turnover also affect the company's rating.
Overall, the top rating indicates the most prime credit rating where the borrower has good, decent
and stable investment and credit worthiness and a very strong ability to repay its debts.
Meanwhile, the lowest rating shows the credit rating default (in default). According to the three
largest rating agencies (Moody's, S&P and Fitch Rating), they provide investment-worthy
recommendations only for countries or companies that have a minimum rating of Baa3 (Moody's),
BBB- (S&P) and BBB- (Fitch Ratings). However, in previous research, there has been no scientific
journal containing Moody's Rating research on the oil palm plantation industry, particularly in
Papua, Indonesia.
THEORETICAL FRAMEWORK
Ratio
According to Warren et. al. (2017), an element of financial statements is useful in interpreting the
results of company operations. Then by making comparisons with the same items from the
previous period, we can get even greater benefits, namely by means of horizontal analysis. The
magnitude of the increase or decrease of the various accounts in the financial statements and their
causes should be investigated further to see whether the company's operations can improve its
efficiency. According to Fahmi (2014), the ratio is the ratio of the number, from one number to
another, then the comparison is seen in the hope that later answers will be obtained and used as
study material for analysis and decisions. Short-term and medium-term investors are generally
more interested in short-term financial conditions and the ability to pay adequate dividends. Arief
et. al. (2020), explains that financial ratios provide an indication of the financial strength of a
company.
Balance Sheet
Financial statements are several pieces of paper with numbers written on them, but it is no less
important to think about the real assets that underlie the numbers (Brigham and Houston, 2018).
In addition, financial reports can also be used as a basis for helping companies project their
finances in the future. The main financial statements for companies are balance sheets, income
statements, cash flow statements and owner's equity statements. According to Fahmi (2014), the
purpose of financial reports is to provide information to parties who need to see the condition of
the company from the point of view of the numbers in monetary units. According to Warren et. al.
(2017), the balance sheet is a list of assets, liabilities and owner's equity as of a certain date. Assets
are arranged in order of their liquidity, or the amount of time it takes to convert them into cash
(Brigham and Houston, 2018). All financial statements must be identified by the name of the
company, the type of report, and the reporting period. The data contained in the income statement,
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Research, 8(8). 262-280.
cash flow statement and owner's equity statement are used for a specific period, while the balance
sheet is for a certain date.
Industry/Market
According to (Ramli and Soelton, 2018; Madura (2011), the success of a business generally depends
on the business environment. Likewise, for an existing business, stakeholders must always monitor
the environment so that they can anticipate how demand for their products or production costs
change. The industrial environment reflects the changing conditions within the industry to which
the company is exposed. Conditions in each industry vary according to business models, demand
and competition. According to Zaharuddin (2006), market analysis describes the size of market
opportunities in the product-market segment by considering the strength of competitors, both in
the trading business, downstream and upstream industries. The company gets business benefits
because it is in an industry that experiences high customer demand for its products. Corporate
customers, namely individuals or other companies who buy goods or services in exchange for
money or other goods of value (Warren et. Al., 2017). According to Zaharuddin (2006), the
structural aspect of industrial competition really needs to be analyzed, considering that there are
so many companies that already exist and have opened the market suddenly new competitors
enter and take part or all of the market that has been created with the strengths they have.
Company
According to Warren et. al. (2017), a company is an organization in which basic resources, namely
raw materials and labor, are processed and managed to produce goods or services (output) for
customers. The goal of the majority of companies is to maximize profits. Profit is the difference
between the amount received from customers for goods and services produced, compared with the
amount spent on purchasing resources to produce these goods and services. There are three types
of companies that operate to generate profits from a business process point of view, namely
manufacturing companies, trading companies and service companies. In terms of ownership, the
company organization is divided into individual companies, partnerships and companies. Each
company has its own characteristics. According to Zaharuddin (2006), determining the form of an
organization depends on the form of business to be run. The ideal organizational structure is
designed according to the goals of the organization and the level of technology that will be used.
Management
According to Hasibuan (2013), management is the science and art of regulating the process of
utilizing human resources and other sources effectively and efficiently to achieve certain goals.
Company management is closely related to human resources. According to Madura (2011), human
resources are people who are capable of doing work for a business. Management can contribute to
production by using their physical abilities, such as working in a factory to produce a product. As
an alternative, management should ideally be able to make contributions, such as suggesting
changes in the production process or motivating other workers. According to (Mardaconsista and
Soelton, 2018; Soelton et. al., 2018; Soelton et. al., 2020; Soelton et. al., 2019; Zaharuddin, 2006),
basically there are several types of management, but in the context of exploring a business, there
are only two types of management, namely small business scale management or large business
scale management.
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Moody’s Rating
This research is supported by previous studies on Moody's Rating from different industries to
support and strengthen the study and results of this research. The following table describes the
results of a study of several previous studies that have been conducted regarding Moody's Rating.
Genc and Basar (2019) said that the comparison of the results obtained by rating countries on
various macroeconomic variables uses the credit score given by the three main credit rating
agencies and uses the MOORA method. The second is the determination of how optimistic or
pessimistic the three main CRA outcomes are according to their estimates by macroeconomic
variables. The results of Fererhofer (2017) research show that family companies achieve better
scores in profitability, leverage structure and liquidity development based on credit rating scores.
Only company size represents no significant difference between family and NFF.
According to Krichene and Khoufi (2016), companies with small boards and large blockholders
tend to target lower rankings. We also find that firms tend to make choices that compensate for
deviations from their target rating levels. In the experiments of Tang, et. al (2018), found that the
participant's credit rating is significantly influenced by the client's position, and this effect does not
depend on the sophistication of the investor base of the company being rated or on the risk profile
of the company being rated. We also found that the client's position influenced the participants'
briefing goals, and these briefings were a significant predictor of the credit rating.
White (2010) says those involved in this public policy debate on credit rating agencies should ask
themselves the following question: Is the regulatory system that delegates important safety
assessments of bonds to a third regulatory system that delegates important safety assessments of
bonds to third parties in the best interests of regulated financial institutions and financial parties
in the best interests of regulated financial institutions and financial markets more generally? To
what extent will the broader regulation of rating agencies succeed in pressuring rating agencies to
make better judgments in order to make better judgments in the future? To what extent do these
regulations limit flexibility, innovation, and entry into the bond information market? Can financial
institutions instead be trusted to seek their own sources of information on the creditworthiness of
bonds, as long as financial regulators oversee the security of the bond portfolio?
According to Hirk, et. al. (2018), an empirical application consisting of an analysis of the credit
ratings of companies from three major credit rating agencies (Standard & Poor, Moody's and Fitch).
Company-level and share price data for publicly traded US companies as well as an unbalanced
issuer's credit rating panel are collected and analyzed to illustrate the proposed framework. Joffe,
et. al (2012) stated that the credit crisis in relatively high-income countries was a disaster. The
rating development stage and future reform requirements of China's credit rating industry (Bian,
2015).
The country's credit rating drew substantial and justifiable criticism after the 2008 financial crisis
(Ozturk, 2015). Gaillard (2009) finds that three variables (history of defaults of sovereign issuers,
GDP per capita and ratio of net direct debt to local government operating income) explain 80% of
the sub-government rankings.
From the previous research above, it is known that there are no journals that specifically discuss
Moody's rating on the oil palm plantation industry, so it is hoped that the results of this study can
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Research, 8(8). 262-280.
add to the scientific knowledge in the financial sector, especially regarding moody’s ratings and
investment grade. This of course can be done with good cooperation between researchers,
academics, practitioners, plantation and oil palm processing institutions, as well as the role of the
community as stakeholders of the industry itself.
RESEARCH METHODOLOGY
This study uses a quantitative research approach. According to Sugiyono (2018), quantitative
research is a research method that is based on the philosophy of positivism, used to research a
specific population or sample, data collection using research instruments, quantitative or statistical
data analysis. Abdurrahman and Muhidin (2011), quantitative research is a research that reflects
that the data to be analyzed comes from numerical data. In this case the researcher wants to find
out whether investment in oil palm plantation and processing in Papua categorized into the
investment grade or non-investment grade category at Moody's rating and knows how to make
investment in oil palm plantation and processing in Papua fall into the investment grade category
and/or increase. rating through Moody's rating analysis.
Population is a combination of all elements in the form of events, things or people who have similar
characteristics that become the center of attention of a researcher because it is seen as a research
universe (Mardaconsista and Soelton, 2018; Soelton et al, 2018; Soelton et al, 2020; Soelton et al,
2019; Ferdinand, 2014). The population in this study were 20 oil palm plantation and processing
companies in the Merauke area, Papua. The sample is a subset of the population, consisting of
several members of the population, by studying the sample the researcher will be able to draw a
conclusion that will be generalized to the population. The sample was carried out because of the
limitations of researchers in conducting research both in terms of funds, time, energy, and a very
large population. Therefore, the sample taken must really be representative (Ferdinand, 2014).
This researcher uses a non-probability sampling technique which is a technique that does not
provide equal opportunities for each member of the population to be selected as a sample
(Sugiyono, 2018). In non-probability sampling, purposive sampling technique is used in selecting
samples, where the sample selection is based on the researchers' subjective considerations
because it is considered appropriate in providing the desired information (Ferdinand, 2014). The
sample in this study is 1 oil palm plantation and processing company in Merauke, Papua. The
reasons for choosing the object of research were that the company had complete legality and
permits, was operating, and had a large plantation land bank of +35,000 hectares and was equipped
with processing facilities with a capacity of 120 tons/hour.
The data collected in this study were obtained from primary data and secondary data. Primary data
refers to data that has been collected directly from data collectors (Hardani, 2020). Primary data
were obtained from observations at the Jakarta Head Office. Observation activities are intended to
hunt down the “life table” that lies in the daily reality of the community. Furthermore, secondary
data is obtained from business legality, financial reports, production reports and other third
parties from internal and external. According to Sugiyono (2018), data analysis is the process of
searching and systematically arranging data obtained from observations, interviews, field notes,
and documentation by organizing data into categories, describing them into units, arranging them
into patterns, choosing which ones important things and what will be studied, and draw
conclusions so that they can be understood by oneself and others. Analysis of the data used in this
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study is the Moody's rating. According to (Ramli and Soelton, 2018; Mardaconsista and Soelton,
2018; Soelton et al, 2018; Soelton et al, 2020; Soelton et al, 2019; Haningsih et. al., 2014) requires
strategic information, financial information and non-financial information for investors to make
decisions.
The stages begin with data processing through the assessment of the company's financial
statements for the last 3 years on moody's rating analysis (MRA) to obtain values for historical
ratio assessment variables and balance sheet factors, as well as by conducting an assessment of
industry/market, company and management variables. These variables will have their respective
scores which in the end produce a moody's rating.
The historical ratio assessment and balance sheet factors variables will be carried out spreading
the financial statements for the last 3 years on the research object. After that, market checking will
be carried out on the industry/market variable by determining; industry type, market condition,
customer power, diversification of products and competitive position. For company variables, an
assessment will be carried out by determining; years in relationship (company with creditors/
investors), business stage, quality management, supplier power, credit history and conduct of
account. Then the management variable is carried out an assessment by determining; experience
in industry, financial reporting and formal planning, risk management, openness, risk appetite, and
management style and structure. So that the following research framework is obtained:
Figure 1. Research Framework
Source: Processed Data, 2020
After the overall analysis is carried out, the output that will be produced is an investment feasibility
rating. The investment feasibility breakdown is as follows:
Variable
Activity
Management
- Financial Reporting and Formal Planning
- Risk Management
- Openness
- Risk Appetite
- Management Style and Structure
- Credit History
- Conduct of Account
- Experince in Industry
Management Checking;
- Customer Power
- Diversification of Products
- Competitive Position
Company
Company Checking;
- Years in Relationship
- Business Stage
- Quality Management
- Supplier Power
Industry / Market
Market Checking;
- Industry Type
- Market Condition
Spreading of Financial Statement;
- Last 3 years of Financial Statement
Historical Ratio Assessment Balance Sheet Factors
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Saratian, E. T. P., Arief, H., Ramli, Y., & Soelton, M. (2020). Moody's Rating For Palm Oil Plantation Companies In Papua, Indonesia. Archives of Business
Research, 8(8). 262-280.
Table 1. Moody’s Rating Grade
Source: Moody's Simple Guide, 2016
An investment that is considered feasible or is included in the investment grade category is a rating
of Aa1 to B2. The green indicator is investment grade with low risk, while the yellow one is
investment grade with moderate risk. The B3 to C ratings are classified as non-investment grade
and have high risk. The output of this research is grade after data processing through Moody's
Rating Analysis (MRA), so that it is known that oil palm plantation and processing companies in
Merauke, Papua are included in the investment grade or non-investment grade category.
RESULTS AND DISCUSSION
The stages begin with data processing through the assessment of the company's financial
statements for the last 3 years on Moody's rating analysis (MRA) to obtain values for historical
ratio assessment variables and balance sheet factors, as well as by conducting an assessment of
industry / market, company and management variables. These variables will have their respective
scores which in the end produce a Moody's rating. The historical ratio assessment and balance
sheet factors variables will be carried out spreading the financial statements for the last 3 years on
the research object.
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Table 2. Variable of Historical Ratio Assessment, Dimensions, Indicators, Options and Analysis
Source: Processed Data, 2020
In the “balance sheet factor” section, there are fields that must be filled in related to the spreading
of financial statements for the last three years, including: in the “inventory valuation” indicator, the
researcher chooses “auditor present”, which means that the company's inventory data is taken
from the company's audited financial statements. presented by auditors classified as the Big Four.
Furthermore, on the “Accounts Receivable Risk” indicator, the researcher chooses “Good Spread,
Good Quality” on the grounds that the company's receivables consist of at least fifteen separate
entities, spread over at least three separate industries or geographies, while a bad spread will
consist of up to five separate entities if in similar industries or geographies, then if classified as
average, then the spread will be between good and bad. When determining the quality of the
debtor, consider the opportunities for litigation (for example, disagreements about the agreement)
and the reliability of the debtor.
In the “Debt Repayment” indicator, the researcher chooses “Wide Spread” with the consideration
that debt payments refer to payments that are well-spread in the future and a concentration of
contractual debt payments that can suppress the obligor's future cash flows that are also spread
out. In the "Owner Support" section, "> 30%" is selected because owner support refers to the level
of additional financial support that can be provided by the owner to the business, in this case it can
be seen from the net worth when compared to the company's total assets. This support can provide
protection against bankruptcy when the company is experiencing difficulties, therefore it can
reduce the possibility of default. In the indicator "Instrinsic Full Value of Intangibles", the
researcher chooses "Negligible" with the consideration that this indicator refers to the value of
intangible assets owned by the company, in this context the company does not have intangible
assets. In addition, it is known that in calculating the company's leverage, the system removes
intangibles from its capital calculations. So that you get a summary in the table as follows:
Variable Dimension Indicator Option and Analysis
PBT / Total Assets Data is processed from the spreading of financial statement
PBT / Net Sales Data is processed from the spreading of financial statement
PBT / Tangible Net Worth Data is processed from the spreading of financial statement
Sales growth Data is processed from the spreading of financial statement
GPM Data is processed from the spreading of financial statement
NOP Margin Data is processed from the spreading of financial statement
Breakeven Sales Realization Data is processed from the spreading of financial statement
Earning Coverage Data is processed from the spreading of financial statement
Cash Flow Coverage Data is processed from the spreading of financial statement
Trade Payable Days Data is processed from the spreading of financial statement
Account Receivable Days Data is processed from the spreading of financial statement
Quick Ratio Data is processed from the spreading of financial statement
Inventory Days Data is processed from the spreading of financial statement
Debt / Tangible Net Worth Data is processed from the spreading of financial statement
Borrowed Funds / EBITDA Data is processed from the spreading of financial statement
Borrowed Funds / Effective TNW Data is processed from the spreading of financial statement
Historical Ratio
Assessment
Operations
Debt
Service
Liquidity
Capital
Structure
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Saratian, E. T. P., Arief, H., Ramli, Y., & Soelton, M. (2020). Moody's Rating For Palm Oil Plantation Companies In Papua, Indonesia. Archives of Business
Research, 8(8). 262-280.
Table 3. Variable of Balance Sheet Factor, Dimension, Indicator, Option and Analysis
Source: Processed Data, 2020
After that, market checking will be carried out on the industry / market variable by determining;
industry type, market condition, customer power, diversification of products and competitive
position. In the indicator "Industry Type", it is filled with the plantation and palm oil processing
industries. In the "Market Condition" section, "Neutral" is chosen because Market Condition refers
to the impact of local market conditions that affect the obligor's performance. In this case, local
market conditions are largely similar to the industry as a whole. In the "Customer Power" indicator,
the researcher chooses "Some" with the consideration that customer strength refers to the
influence the customer can have on the company. When answering this question, the researcher
considers the number of customers, the size of the company, and the typical size of each
transaction. The more customers and the smaller their purchases, the less leverage they have. In
this case the relationship between each customer and the obligor tends to be quite equal. This can
occur in situations where there are few customers and few suppliers.
Each has an interest in maintaining good relationships and working to resolve any difficulties. In
the indicator "Diversification of Products", the researcher chooses "Few Products, Broad Market"
with the consideration that product diversification refers to the variety of products produced by
the obligor and the market in which the product is sold. In this case, the company sells products in
the form of Crude Palm Oil (CPO) and Palm Kernel (PK), so it can be said that the types of products
that are sold are few, but have a wide market because of the many palm derivative products. In the
"Competitive Position" indicator, the researcher chose "Among the Top Few" with the
Variable Dimension Indicator Option and Analysis
Auditor Present
Taken from Inventory Records
Owner's Estimates
Not Applicable
Good Spread, Good Quality
Average Spread, Good Quality
Little Spread, Good Quality
Good Spread, Poor Quality
Average Spread, Poor Quality
Little Spread, Poor Quality
Off-Balance Sheet Facilities Only
Mainly Revolving Credit
Wide Spread
Tight Spread
Very Concentrated
> 30%
20%-29%
10%-19%
<10%
>100% of Net Worth
75-100% of Net Worth
50-75% of Net Worth
25-50% of Net Worth
5-25% of Net worth
Negligible
Inventory Valuation
Accounts Receivable Risk
Capital
Structure
Debt Repayment
Owner Support
(% of Existing Facilities)
Instrinsic Full Value of Intangibles
Balance Sheet
Factors
Liquidity
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consideration that a business that is among the big names, will be considered an industry leader,
but will have several partners who are targeted to be famous, and the company has a fairly large
garden in the area and the number of Palm Oil Mill with a capacity of 120 tons / hour. So that you
get a summary in the table as follows:
Table 4. Variable of Industry/Market, Dimension, Indicator, Option and Analysis
Source: Processed Data, 2020
For company variables, an assessment will be carried out by determining; years in relationship
(company with creditors / investors), business stage, quality management, supplier power, credit
history and conduct of account. In the indicator "Years in Relationship", the researcher chooses
"New Customer" with the consideration that this point describes the length of time the
organization has a relationship with customers, in this case the company is still in a growth stage
in its business. A new customer will often be at a much greater risk than a known customer over
the years. This is due to the increased availability of information available and its reliability. In the
“Business Stage” indicator, the researcher chooses “Growth - Early” considering that the business
has left the entrepreneurial stage and is starting to grow at a significant rate.
Similar to the entrepreneurial stage, management and business structures will remain ad hoc and
oriented to respond to pressing market needs. In addition, there will usually be significant
investment in new products and marketing, in which case the company continues to expand its
plantations and also builds palm oil mills in stages. In the "Quality Management" indicator, the
researcher chooses "Meets Industry Standards" with a consideration of how quality is handled
throughout the business whether in production or sales. Consider all aspects of the business
whether it is order processing, production errors, or customer feedback. In this case, the company
has ISPO certification in its business process.
In the "Supplier Power" indicator, the researcher chooses "Limited" with the consideration that the
strength of the supplier refers to the influence the supplier can have on the company. When
answering this question consider the choice of supplier, the relative size of the supplier, the typical
Variable Dimension Indicator Option and Analysis
Industry Industry Type Filled with Type of Industry
Enhancing Performance
Neutral
Constraining Performance
Weak
Limited
Some
Significant
Strangehold
Many Products, Broad Market
Few Products, Broad Market
Many Products, Narrow Market
Few Products, Narrow Market
Dominant
Among the Top Few
Neutral
Laggard
Industry / Market Market
Market Condition
Customer Power
Diversification of Products
Competitive Position
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Saratian, E. T. P., Arief, H., Ramli, Y., & Soelton, M. (2020). Moody's Rating For Palm Oil Plantation Companies In Papua, Indonesia. Archives of Business
Research, 8(8). 262-280.
size of each transaction and how expensive it will be to change suppliers. A “Limited” option is
when the individual supplier has very little influence over the company. This situation often occurs
when individual ticket prices are very high and there are relatively few suppliers and customers.
In this case, the company needs only a small supply of Fresh Fruit Bunches (FFB) from plasma
farmers to increase the FFB processed at the company's Palm Oil Mill, the majority of which can be
fulfilled by the company from their own plantations. In the "Credit History" indicator, the
researcher selects "Clear" considering a credit record is available, and no problems are noted on
any external source to check the smoothness of the company's credit payments. In the “Conduct of
Account” indicator, the researcher chooses “No Experience” with the consideration that the
company does not violate the credit requirements. So that you get a summary in the table as
follows:
Table 5. Variable of Company, Dimension, Indicator, Option and Analysis
Source: Processed Data, 2020
Then the management variable is carried out an assessment by determining; experience in
industry, financial reporting and formal planning, risk management, openness, risk appetite, and
management style and structure. In the indicator "Experience in Industry", the researcher chooses
"3 - 10 Years" considering the length of time the company has operated in this range. In the
"Financial Reporting and Formal Planning" indicator, the researcher chooses "Appropriate
Planning and Reporting" with the consideration that this question refers to the amount and quality
Variable Dimension Indicator Option and Analysis
> 2 Years
1 - 2 Years
New Customer
Entrepreneurial - Market
Unproven
Entrepreneurial - Market
Established
Growth - Early
Growth - Mature
Stable - Mature
Declining Transition
Exceeds Industry Standards
Good
Meets Industry Standards
Falls below Industry Standards
Weak
Limited
Some
Significant
Strangehold
Clear
No Experience
Minor Problems
Bankrupt > 5 Years Ago
Major Problems
Bankrupt < 5 Years Ago
Good
Minor Breaches
Major Breaches
No Experience
Company
Years in Relationship
Business Stage
Quality Management
Supplier Power
Credit History
Conduct of Account
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Archives of Business Research (ABR) Vol.8, Issue 8, August-2020
of financial planning and reporting carried out by the obligor. Planning refers to creating a strategic
and business plan with a budget that accompanies the business plan. Financial reporting refers to
gathering financial information to determine whether (and how) the obligor is performing against
previous plans and budgets. In this case, the company has a good level of planning and reporting
according to balance and standards. In the indicator "Risk Management", the researcher chooses
"Proactive", where Risk Management refers to the way of managing risk in business. In this sense,
management takes a comprehensive and strategic view of risk, actively looks for potential sources
and implements effective management controls and mitigations. In the indicator "Openness", the
researcher chose "Meets Expectations" with the explanation that openness refers to the willingness
of management to provide accurate and timely information.
In this case, management provides all requested information in a timely manner and also provides
warnings about changing circumstances, such as in account or financial downturns, before these
become apparent. In the “Risk Appetite” indicator, the researcher chooses “Balanced” with the
explanation that Risk Appetite refers to the management approach to making decisions and their
willingness to take business and financial risks. In general, management needs to take these risks
for their business to be successful. However, this risk must be understood and only taken when the
possible reward is worth the risk. In this case, management understands the risks taken, and
ensures that the benefits offered outweigh the risks taken. In the "Management Style and
Structure" indicator, the researcher chooses "Adequate", where this question refers to the style
and structure used by management to run the business.
To answer this question, consider the type of business, size in terms of sales and employees,
complexity of products and processes, the amount of innovation required and the cost of errors. In
this case, the company has a relatively flat hierarchy of organizational structure and allows for
considerable adaptation. Apart from that, the company also has a management style where
decision making is well distributed. So that you get a summary in the table as follows:
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Saratian, E. T. P., Arief, H., Ramli, Y., & Soelton, M. (2020). Moody's Rating For Palm Oil Plantation Companies In Papua, Indonesia. Archives of Business
Research, 8(8). 262-280.
Table 6. Variable of Management, Dimension, Indicator, Option and Analysis
Source: Processed Data, 2020
After all the input and analysis are carried out, the output is obtained in the form of an investment
feasibility rating with the risk category "Medium Risk". Thus, oil palm plantation and processing
companies in Merauke, Papua are classified as investment grade or eligible for investment.
However, the B2 score is in the lowest investment grade category, so improvements are needed so
that investment grade will improve and attract investors.
Figure 2. Moody's Rating Data Processing
Variable Dimension Indicator Option and Analysis
> 20 Years
11 - 20 Years
3 - 10 Years
1 -2 Years
New to Industry - Relevant
Experience
New to Industry - No Experience
Exceptional Planning and Reporting
Appropriate Planning and Reporting
Some Planning and Reporting
No Planning but Some Reporting
No Planning or Reporting
Proactive
Reactive
None
Exceeds Expectations
Meets Expectations
Reluctant
Secretive
Overly Cautious
Balanced
Overly Aggressive
Optimal
Adequate
Limiting
Management
Experince in Industry
Financial Reporting and Formal
Planning
Risk Management
Openness
Risk Appetite
Management Style and Structure
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Archives of Business Research (ABR) Vol.8, Issue 8, August-2020
CONCLUSIONS AND SUGGESTIONS
After all the input and analysis are carried out, the output is obtained in the form of an investment
feasibility rating with the risk category "Medium Risk". Thus, oil palm plantation and processing
companies in Merauke, Papua are classified as “investment grade” or eligible for investment, but
the “B2” score is in the lowest “investment grade” category, so improvements are needed so that
grading is getting better and more attractive. investors. As for ways to keep the company in the
investment grade category or even to increase the company's grading to a better level, companies
are advised to do the following: a) The value of the Historical Ratio Assessment and Balance Sheet
Factor will improve if the sales of CPO and PK optimal company by empowering the company's
second Palm Oil Mill. In addition, the support of fruit supply along with the increasing age of the
plant will increase the yield and quality of CPO and PK sold by the company, (b) In the industry /
market variable, companies must explore the demographic advantages of plantation locations in
Papua which have more fertile soil, which can be seen realization.
Productivity of the company's garden is at 130% of the standard S3 field class and Marihat seeds.
In addition, companies must diversify their customers to strengthen their bargaining position in
the market. (c) In the company variable, companies are advised to maintain business processes
according to sustainable plantation standards and must have ISPO / RSPO certification to increase
their current score. In the management variable, the company needs a longer experience to prove
its business continuity within a certain period of time. In this case, the company must always carry
out the principles of risk management properly and fulfill the reporting obligations, both to
regulators, creditors and other related parties.
From the results of this study, this oil palm plantation and processing company in Merauke, Papua
must make improvements in various ways, including: a) the historical ratio assessment weight is
still small because the financial statements for the last 3 years have not been optimal. This is
because the planting age of the plantation is still relatively young and the company's second Palm
Oil Mill was only effective at the end of 2019. The value of the Historical Ratio Assessment and
Balance Sheet Factor will improve if the company's sales of CPO and PK are optimal by empowering
the company's second Palm Oil Mill. In addition, the support of fruit supply along with increasing
plant age will increase the yield and quality of CPO and PK sold by the company, (b) In the industry/
market variable, it is known that the competition in the oil palm industry is quite tight. However,
the company can explore the demographic advantage of the location of the plantation in Papua
which has more fertile land, where it can be seen that the realization of the company's plantation
productivity is at the level of 130% of the standard S3 land class and Marihat seedlings.
In addition, companies must diversify their customers to strengthen their bargaining position in
the market. (c) For the company variable, it is advisable to maintain business processes according
to sustainable plantation standards and must have ISPO/RSPO certification to increase the current
score. In the management variable, the company needs a longer experience to prove its business
continuity within a certain period of time. In this case, the company must always carry out the
principles of risk management properly and fulfill reporting obligations, both to regulators,
creditors and other related parties. For future researchers, it is advisable to conduct research on a
wider sample coverage and emphasize corporate actions that must be carried out.
Page 17 of 19
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Saratian, E. T. P., Arief, H., Ramli, Y., & Soelton, M. (2020). Moody's Rating For Palm Oil Plantation Companies In Papua, Indonesia. Archives of Business
Research, 8(8). 262-280.
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