By Xavier Kong
Tiger has definitely heard of shopping sprees, but the one that FGV has been on since its listing is definitely one for the record. However, Tiger believes that it is time FGV starts slowing down, otherwise the group may very well go the way of Greece.
When Felda Global Ventures Holdings Bhd (FGV) listed back on June 28, 2012, the group had the backing of the government and managed to raise a total of RM4.46 billion through its initial public offering (IPO).
However, while Tiger understands that this would be directed towards growing the group, the acquisitions that have been made are somewhat questionable, such as the Pontian United Plantations, which saw FGV paying a total of RM140 per share for an unlisted plantations player. In addition, the recent Sabah land acquisitions, where FGV plans to pay a premium of almost RM2,500 per ha for the land, as well as the current proposed acquisition of Indonesia-based Eagle High Plantations at a 70% premium to the offer price, all for a company that few have heard of!
Yes, Tiger is of the opinion that some of those deals definitely do not boost the confidence of investors, and yes, Tiger really thinks that there is something fishy going on.
However, Tiger would like to approach this from another angle. Should FGV still be making supreme premium prices like it has? Should it even continue to make acquisitions?
Tiger’s opinion on those two questions is “no”. FGV has no more room to be paying overly generous premiums for its acquisitions, and also that no, FGV definitely should not be acquiring anything else currently.
Of the RM4.46 billion FGV had raised through its IPO, only RM446 million was left as at the end of 2014, a mere 10%. Furthermore, FGV is not exactly in a net cash position, and has even turned into a loss-making group in the past quarter.
FGV, Tiger hopes that you’d understand that the money is not yours, but rather was entrusted to you by people who believe that you would put the money to good use.
So far, Tiger can see that people have been losing their trust in you, none more obvious than an 11% drop in share price from RM1.86, when the proposal was announced, to RM1.65 in two working days. Then again, the dip in share price is not exactly new, considering FGV’s share price has been on the decline ever since it hit an all-time high of RM5.45 on July 2, 2012. The share price has declined a massive 63.5% since listing.
Tiger thinks that it really should be time for FGV to dial back on its acquisitions, and to take a good and hard look at the acquisitions being made.
No, Tiger is not saying that FGV should stop growing, or they should stop making acquisitions, but Tiger is just calling for more caution, as well as better at negotiating terms before moving forward with a deal.
Honestly, Tiger thinks that it would actually benefit FGV more in the long run to solve its problem with its land lease agreements. The whole land lease thing is actually something that has been gnawing at Tiger for a while.
Seeing that FGV is a part of Felda, and is actually using the land to grow its business, why should Felda charge FGV rent to use the land? The plot is also thickened by the point that the lease payments fluctuate. It just does not make sense to Tiger.
Why not just release the land to FGV directly as an asset injection? That way, FGV would not have the land lease payments weighing down its balance sheet, and would likely see higher margins, which would in turn be channelled back to Felda by means of its 33.7% stake in FGV.
Why complicate matters? Why tie FGV down?
Then again, as a company that should be responsible to its shareholders, FGV’s focus right now should probably be to turning itself around, considering FGV made a net loss of RM37 million for the first quarter of its 2015 financial year ended March 31. It marked the first time that FGV was loss-making ever since it listed.
This should probably be at the top of the “matters-to-solve” priority list for FGV. What is the point of having acreage that spans nations, when the company is losing money? No point going for that gloriously high turnover and substantial acreage if there is no profit, is there?
Tiger really thinks that FGV should have focused on taking care of whatever is holding it back, rather than go on the shopping spree it has over the past three years. Still, hindsight is 20/20, and Tiger can but hope that FGV will consider its next step carefully, lest it draws even more ire than it already has with the proposal of the acquisition of Eagle High Plantations.
GRRRRR!!!
Yesterday: The reactions and the fallout
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