PETALING JAYA: Plantation group Felda Global Ventures Holdings Bhd (FGV) is believed to have been offered up to 15% discount on its planned purchase of PT Eagle High Plantations Tbk despite seeking a higher reduction in the price, according to sources.
The 15% discount would mean FGV would be paying around US$578mil (RM2.39bil), compared with the original price tag of US$680mil (RM2.8bil).
StarBiz had first reported in November 2015 that FGV was seeking to secure a discount in the price of its 37% stake purchase in the Indonesian planter.
Recall that on June 12, 2015, FGV had proposed to acquire from Rajawali Group a 37% stake in Eagle High – the third-largest plantation group listed in Jakarta – for US$631.5mil (RM2.37bil) cash and 95.44 million new FGV shares, representing 2.55% of the enlarged and issued share capital of the group. It also plans to buy 95% of a sugar project from Rajawali for US$67mil.
The proposed deal was not well received by investors because of its valuation and the impact on FGV’s balance sheet.
Recently, a business weekly speculated that FGV was working with its parent, Federal Land Development Authority (Felda), to secure a 30% discount on the Eagle High deal.
In early December, FGV had said that there might be “a different mode of investment” in Eagle High.
Instead of the 37% stake, FGV could be taking a much smaller stake, with the larger stake being taken by Felda Investment Corp (FIC), which could take away a large portion of the risk from the former, which has been hit hard by weaker crude palm oil prices. FIC is Felda’s main investment arm and has made numerous strategic investments in recent years.
Following the news, CIMB Research said if this transaction were to materialise as reported and if FGV were to buy a 10% stake in Eagle High for around 563 rupiah per share (30% discount to the last proposed price), it would be negative for FGV as this could potentially dilute FGV’s value by RM416mil.
CIMB Research said this is because at 563 rupiah per share, the group would be paying a premium of 410% above Eagle High’s current market price of 137 rupiah per share, for a small stake.
“The persistent news flow on its plans to acquire Eagle High at a premium over its market price may dampen sentiment on share prices of the company. On top of this, the group’s FY15 results are likely to remain weak as it posted a 6% year-on-year decline in fresh fruit bunch (FFB) output for the 11 months of FY15, which is sharper than our estimate of a 5% decline for the full year as well as below Malaysia’s palm oil output growth of 1% in 11 months of FY15. We suspect this could be due to declining FFB yields at its estates,” it adds.
CIMB Research had cut its FGV target price to RM1.49 from RM1.73 while maintaining a “reduce” call for the stock. It raised FGV’s discount to sum-of-parts (SOP) valuation from 30% to 40% over concern about the company’s plan to acquire a stake in Eagle High.
“We are keeping our earnings forecasts, but lower our target price as we raise the discount to our SOP valuation from 30% to 40%. The higher discount was to reflect our concerns over its plans to buy Eagle High as well as for its lower-than-expected FFB output,” it said.
FGV shares have rebounded from RM1.45 on Jan 26 to RM1.72 on Friday giving the company a market capitalisation of over RM6.2bil.
PETALING JAYA: Plantation group Felda Global Ventures Holdings Bhd (FGV) is believed to have been offered up to 15% discount on its planned purchase of PT Eagle High Plantations Tbk despite seeking a higher reduction in the price, according to sources.
The 15% discount would mean FGV would be paying around US$578mil (RM2.39bil), compared with the original price tag of US$680mil (RM2.8bil).
StarBiz had first reported in November 2015 that FGV was seeking to secure a discount in the price of its 37% stake purchase in the Indonesian planter.
Recall that on June 12, 2015, FGV had proposed to acquire from Rajawali Group a 37% stake in Eagle High – the third-largest plantation group listed in Jakarta – for US$631.5mil (RM2.37bil) cash and 95.44 million new FGV shares, representing 2.55% of the enlarged and issued share capital of the group. It also plans to buy 95% of a sugar project from Rajawali for US$67mil.
The proposed deal was not well received by investors because of its valuation and the impact on FGV’s balance sheet.
Recently, a business weekly speculated that FGV was working with its parent, Federal Land Development Authority (Felda), to secure a 30% discount on the Eagle High deal.
In early December, FGV had said that there might be “a different mode of investment” in Eagle High.
Instead of the 37% stake, FGV could be taking a much smaller stake, with the larger stake being taken by Felda Investment Corp (FIC), which could take away a large portion of the risk from the former, which has been hit hard by weaker crude palm oil prices. FIC is Felda’s main investment arm and has made numerous strategic investments in recent years.
Following the news, CIMB Research said if this transaction were to materialise as reported and if FGV were to buy a 10% stake in Eagle High for around 563 rupiah per share (30% discount to the last proposed price), it would be negative for FGV as this could potentially dilute FGV’s value by RM416mil.
CIMB Research said this is because at 563 rupiah per share, the group would be paying a premium of 410% above Eagle High’s current market price of 137 rupiah per share, for a small stake.
“The persistent news flow on its plans to acquire Eagle High at a premium over its market price may dampen sentiment on share prices of the company. On top of this, the group’s FY15 results are likely to remain weak as it posted a 6% year-on-year decline in fresh fruit bunch (FFB) output for the 11 months of FY15, which is sharper than our estimate of a 5% decline for the full year as well as below Malaysia’s palm oil output growth of 1% in 11 months of FY15. We suspect this could be due to declining FFB yields at its estates,” it adds.
CIMB Research had cut its FGV target price to RM1.49 from RM1.73 while maintaining a “reduce” call for the stock. It raised FGV’s discount to sum-of-parts (SOP) valuation from 30% to 40% over concern about the company’s plan to acquire a stake in Eagle High.
“We are keeping our earnings forecasts, but lower our target price as we raise the discount to our SOP valuation from 30% to 40%. The higher discount was to reflect our concerns over its plans to buy Eagle High as well as for its lower-than-expected FFB output,” it said.
FGV shares have rebounded from RM1.45 on Jan 26 to RM1.72 on Friday giving the company a market capitalisation of over RM6.2bil.
1 February 2016
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