Advanced Holdings, through its subsidiary, Advanced Agri, has signed a non-exclusive framework agreement with PT Manunggal Perkasa to supply grains – primarily wheat products – to a major flour milling company in Indonesia.
The signing of the framework agreement was done in a bid to expand and deepen the group’s focus on its agriculture business, said Advanced Holdings BLZ on Oct 16.
The agreement will see Advanced Agri supplying four shipments of 30,000 metric tons (plus or minus 10% depending on the vessel) of premium wheat. The supply will be carried out in the ordinary course of Advanced Agri’s business.
The price will be based on the cost and freight free out price to Cilacap, Indonesia and the payment terms shall be mutually agreed by both parties about 30 days prior to each shipment.
As supply for the shipments will be sourced from third party suppliers, the four shipments are expected to be carried out on a back-to-back basis where Advanced Agri will pay the suppliers after receiving payment from PT Manunggal Perkasa. As such, the company says it does not expect a “substantial” amount of capital required to complete the agreement.
The supply of premium wheat under the agreement will be managed by Markus Ang, an existing director at Advanced Agri.
See also: Temasek teams with Norinchukin on US$173 mil green agri fund
PT Manunggal Perkasa is in the flour mill business and provides high quality and wholesome flour in Indonesia. The company is owned by a family member of the 30% shareholder of Agrimark. None of Advanced Holdings’ directors or controlling shareholders have any indirect or direct interest in the buyer.
The framework agreement will commence in 1Q2024.
“The group is taking a very cautious and strategic step forward and upon the successful completion of this framework agreement, the group may extend and expand the scope of supply and duration, thus helping the group to build a business niche in this area,” says Advanced Holdings.
See also: Japfa completes new delivery of live chickens from Indonesia to Singapore
“The group intends to minimise the risks the group may be exposed to with back-to-back agreements with suppliers with similar payment terms which will help minimise credit exposure and hence risk, as well as cash flow. However, in future, any expansion of the scope and extension of the duration may require substantial cash flow as the group may take positions on the supply and not be able to effect back-to-back contracts for every shipment. Hence, it is prudent to maintain certain level of cash for the continued growth of the agriculture business,” it adds.
Shares in Advanced Holdings closed flat at 20 cents on Oct 16.
