The reactions and the fallout

By Xavier Kong

Having dealt with FGV’s questionable Eagle High Plantations deal, KINIBIZ looks at the reactions and the fallout from the proposed deal.

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There have been a number of responses and reactions regarding the announcement by Felda Global Ventures Holdings Bhd (FGV) that the “world’s largest crude palm oil producer” has proposed to acquire a 37% stake, costing FGV US$680 million (RM2.52 billion) in Indonesia-based PT Eagle High Plantations Tbk (EHP), owned by PT Rajawali Capital International, with Rajawali remaining the “controller” of EHP despite FGV being the largest shareholder.

Reactions

Investors were, perhaps understandably, not very happy with the deal, and this showed in the 11% fall in FGV’s share price over the course of two working days. Having started out at RM1.86 on the day of the announcement, June 12, FGV saw its share price tumble 21 sen to close at RM1.65 on June 15.

Even the Employees Provident Fund (EPF), which owns a 5% stake in FGV, has questioned the rationale behind spending RM2.5 billion on a no-control majority stake in EHP, particularly the generous premium attached to the offer.

This came up during FGV’s annual general meeting (AGM) on June 16, where an EPF representative voiced unhappiness at the proposed acquisition.

The representative was even quoted as saying that “a premium of 30% to market prices would still be acceptable, but a premium of 70% points to a pricey deal”.

Petaling Jaya Utara member of parliament Tony Pua declared that he stands with EPF’s position, fully supporting the motion to stop the deal from going through. Pua also called the deal “unbelievably expensive”, and also called on other institutional funds, which were less vocal in the AGM, to “openly oppose the deal to ensure that FGV’s performance does not get any worse than it already is”.

These other bodies include Lembaga Tabung Haji, Retirement Fund Inc, and the Pahang state government, which own stakes of 7.8%, 5.25%, and 5% respectively.

Pua has also called on Felda, which owns a collective 33.7%, to raise objections to the deal as well, saying that if the above bodies stood together, they could stop the deal from going through with their combined stake of over 50%.

FGV responds

However, group president and chief executive officer of FGV Mohd Emir Mavani Abdullah defended the deal, by stating that the deal is still just a proposal, and still subject to the approval of the shareholders. Emir also noted that FGV is in the process of due diligence for the acquisition.

“I believe that if the numbers speak for themselves and the returns are there, shareholders will approve it,” said Emir Mavani, adding that the young age profile of EHP’s planted land bank and its value accretion potential to FGV are major plus points.

He then noted that the figure offered for the acquisition represents a fair valuation of EHP’s assets, and that the total consideration implies a cost of US$17,400 per planted ha for EHP’s land bank.

“We find that this figure is fair. Remember that this is just for the planted area. There is also access to the rest of the land bank,” said Emir Mavani.

Emir Mavani also compared the deal to Sime Darby Plantations’ acquisition of New Britain Palm Oil Ltd (NBPOL), noting that Sime Darby had paid US$25,900 per planted ha for that deal, while FGV is only paying US$17,400.

He also noted that, should the deal fall through, FGV will get back in full the 23% deposit that FGV Kalimantan has paid to EHP, along with whatever interest accrued.

However, KINIBIZ would like to note that the comparison is, quite basically, comparing apples to oranges.

Sime Darby, in its payment of a premium price, received management control of NBPOL, which is also recognised as one of the best-run planters in the world, along with being fully certified for sustainable palm oil.

On the other hand, despite the supreme premium offered by FGV, the group does not receive management control of EHP, whose asset quality and certifications remain unclear until the completion of due diligence.

The Sondakh connection

The name Sondakh is of note here, considering how FGV has always been a mix of politics and business. Peter Sondakh is the founder and owner of the Rajawali group, and is also the ninth richest man in Indonesia, according to Forbes.

However, another place one may have heard his name, with regards to the political scene in Malaysia, is that Sondakh is also allegedly part of Prime Minister Najib Abdul Razak’s “inner circle”, and has ostensibly served as Najib’s “adviser on Indonesian affairs”.

It should be noted that the Rajawali group, still under the control of Sondakh, who was conferred a Tan Sri title in June 2009, had previously completed its acquisition of EHP, previously PT BW Plantation Tbk, in the final quarter of 2014.

As to how Rajawali came into possession of BW Plantation’s shares, however, is an interesting tale.

There had been media reports that Rajawali would try to acquire BW earlier in 2014, however, this was later shot down as false by BW Plantation.

Then, in September 2014, BW Plantation made an announcement to the Indonesia Stock Exchange that Rajawali was the new owner of 21.55% of the company.

Rajawali had become the owner of BW Plantation through the acquisition of two British Virgin Islands firms, Matacuna Group and Pegasus CP One, which were in control of that 21.55% stake. In the media report, Rajawali also declined to comment on how much it had put down for Matacuna and Pegasus.

Given all the trouble that Rajawali had gone through to acquire BW Plantation, does it really make sense for Rajawali to let go of a 37% stake in this way?

Looking back

This is actually not the first time FGV has been said to have overpaid for something. Yes, KINIBIZ is referring to the spectacular acquisition of Pontian United Plantations (PUP) which FGV had paid RM140 per share for, as analysts had put it then, an unlisted plantations group that would provide minimal earnings contribution. The total acquisition of PUP was for RM1.2 billion, which accounted for almost 27% of FGV’s initial public offering proceeds of RM4.46 billion.

Of course, FGV had gone on a veritable shopping spree with that RM4.46 billion, and PUP was one of the acquisitions.

In addition to the purchases listed in the table above, and not even a week before the announcement of the EHP proposal, FGV had also inked a deal with local group Golden Land Bhd for four plantation-based firms, as well as a parcel of oil palm land spanning 9,813ha in Sabah, of which 8,478ha were already planted with oil palm.

This deal which would cost FGV RM655 million, would be paid for in cash, with FGV utilising internally generated funds as well as borrowings.

However, the valuation of the land at about RM77,250 per ha was seen as expensive by analysts, with some noting that this represented an even higher premium than the price that FGV had paid for PUP, which had come to about RM74,765 per ha.

In the next part of the series, Tiger will offer an opinion on FGV’s spending, and suggest that it maybe time for the “world’s largest crude palm oil producer” to rein in its spending, lest the group go the way of Greece.

Yesterday: FGV’s most questionable deal to date

Tomorrow: Tigertalk – Time to rein it in, FGV