Wilmar International, the world’s biggest palm-oil trader, fell by the most in 17 months in Singapore trading after the Jakarta Globe said its parent was being investigated in Indonesia.

The parent faces a probe for possible tax fraud involving as much 3.6 trillion rupiah ($549 million), the Jakarta Globe said yesterday, citing documents provided by lawmaker Bambang Soesatyo. Wilmar said the tax claims by media reports, which it didn’t identify, were “untrue and unsubstantiated.”

 

“This is likely a misunderstanding between Wilmar and the tax authorities,” Credit Suisse Group AG analyst Tan Ting Min wrote in a report today. “We believe that Wilmar’s share price will underperform until the issue is cleared up, which could take months.” Tan downgraded the stock to “underperform” from “neutral.”

 

Wilmar fell 7%, the biggest one-day drop since December 2008, to close at $5.76. The decline of Singapore’s second-largest stock by market value helped drag the benchmark index down 2.4%.

 

PPB Group Bhd., a Malaysian plantation and property group which owns 18% of Wilmar according to data compiled by Bloomberg, declined 5.8% to 16.60 ringgit, the lowest since March 8, on the Malaysian exchange.

 

“The company is fully confident that its subsidiaries are and have at all times been in full compliance with all relevant Indonesian value-added tax laws,” Wilmar said in a statement yesterday to the Singapore exchange. Its units exported more than US$3 billion ($4.19 billio) worth of palm oil in the past three fiscal years, entitling them to claim 10% value-added tax paid on the cost of the sales, it said.

 

Wilmar is the largest exporter of palm oil from Indonesia. The company is also the biggest provider of cooking oil in China, with the nation accounting for 55% of sales last year.

 

“What is more detrimental is the reputational damage,” an AmResearch Sdn. report said. “We wonder if the Chinese government would start scrutinizing Wilmar’s tax payments and accounts due to the allegations in Indonesia.”

 

CIMB Investment Bank Bhd. analyst Ivy Ng cut her 12-month target to $7.85 from $8.40 “to account for potential weak near-term sentiment.” The bank could cut its earnings forecast by 22% in the “worst-case scenario” of the company returning US$385 million for tax refunds received in the past three years, she said. She maintained her “outperform” call.

 

Goldman Sachs Group Inc. DBS Vickers Securities (Singapore) Pte., Deutsche Bank AG and Macquarie Group reiterated “buy” recommendations for the stock. Citigroup Inc.’s Penny Yaw repeated a “sell” rating.

 

“Unless the government files formal charges, we do not expect any impact on the company’s business in Indonesia,” Goldman’s Patrick Tiah and Nikhil Bhandari wrote in a report. The analysts recommend investors accumulate the stock at current prices with a target of $8.50 in 12 months.