Cover Story: Will Syed Mokhtar make a counter offer for FGV?

TheEdge Thu, Dec 24, 2020 02:00pm - 3 years View Original


IN mid-October, when Tan Sri Syed Mokhtar Albukhary’s Perspective Lane (M) Sdn Bhd (PLSB) expressed interest in FGV Holdings Bhd, via an injection of plantation assets in exchange for shares, the valuation of FGV was at RM1.50 per share, say sources.

The plan was for PLSB to inject Tradewinds Plantation Bhd into FGV in return for a controlling block of shares in the company, but some sources — who were privy to the details of the proposed deal — questioned the valuation of Tradewinds. “It [Tradewinds’ valuation] was high, but I’m not sure how the talks went. I know FGV [officials] met up with them [Syed Mokhtar’s executives],” says one of the sources.

Thus, the question now is, will Syed Mokhtar make a counter offer to the Federal Land Development Authority’s (FELDA) mandatory takeover offer of RM1.30 per share for the equity interest in FGV that it does not control?

This RM1.30 offer came about as FELDA, which has a 33.66% stake in FGV, had acquired 13.88% — 7.78% from Ministry of Finance-controlled Urusharta Jamaah Sdn Bhd (UJSB) and 6.1% from state-controlled pension fund Kumpulan Wang Persaraan (Diperbadankan) (KWAP) — for RM658 million. However, FELDA placed a caveat — it would only undertake the mandatory takeover offer if it is able to obtain the requisite funding.

While Syed Mokhtar’s gearing level is also said to be high, his proposal involves an asset injection, which means that UJSB and KWAP will not get any cash but only retain their shareholding in an enlarged entity.

It is understood that Syed Mokhtar has been eyeing FGV for some time now, but whether he will fight for control of the company or walk away from it remains to be seen.

Another source familiar with the proposed deal says that with the current political scenario, Syed Mokhtar may walk away from FGV but be compensated by the award of spectrum for his telecommunications business. However, all this remains conjecture at press time.

In the middle of last month, The Edge reported that Syed Mokhtar’s plan to inject Tradewinds into FGV had hit a brick wall as his proposal had received opposition from certain quarters in the government.

However, with the RM1.30 offer made by FELDA, which some perceive as low, another source reckons that Syed Mokhtar may still have a go at FGV. It is noteworthy that the company was floated on Bursa Malaysia at RM4.55 in 2012. However, FGV today is not as exciting as it was eight years ago, when its debut on the local bourse in a mega listing made it the world’s second largest initial public offering after Facebook.

It is difficult to gauge the valuation of Tradewinds as it is a private company wholly owned by PLSB. It currently has about 160,000ha of land bank, of which 87% is planted. According to its website, Tradewinds has 132,940ha of oil palm and 6,940ha of rubber plantations as well as 11 palm oil mills.

In its financial year ended December 2018, Tradewinds chalked up an after-tax profit of RM973.57 million from RM2.5 billion in revenue, according to its filings with the Companies Commission of Malaysia (SSM). As at end-2018, the company had total assets worth RM6.57 billion and total liabilities of RM3.08 billion.

It is noteworthy that there are other valuable assets, such as Padiberas Nasional Bhd (Bernas) and Central Sugars Refinery Sdn Bhd, parked under PLSB as well.

Bernas, which has a mandate from the federal government to import rice, secured a 10-year extension of its concession last month. While the company is wholly owned by PLSB, Minister of Finance Inc has a golden share in it.

For its financial year ended December 2019, Bernas chalked up an after-tax profit of RM135.08 million from RM3.92 billion in sales. As at end-2019, the company had total assets of RM5.33 billion and total liabilities of RM3.4 billion. It also had retained earnings of RM1.32 billion.

Central Sugars is one of two large players in the sugar refinery industry. The other is MSM Malaysia Holdings Bhd — a 51% unit of FGV. Thus, if PLSB’s injection of assets results in Syed Mokhtar taking more than 51% equity interest in the merged entity, it would give him control of MSM as well.

However, when the injection of Central Sugars was speculated, FGV denied any knowledge of the sugar refiner being part of the asset injection. But if push comes to shove, Syed Mokhtar could inject more assets to make his offer more attractive.

Central Sugars registered an after-tax profit of RM87.98 million from RM1.17 billion in sales for the year ended December 2019. The company had total assets of RM1.13 billion, total liabilities of RM564.18 million and retained earnings of RM372.05 million at end-2019.

While it is not clear what other assets PLSB has in its portfolio, the company had total assets of RM14.53 billion and total liabilities of RM12.35 billion at the end of last year. It achieved an after-tax profit of RM1.06 billion on the back of RM7.95 billion in turnover in 2019.

According to SSM filings, some of the other assets under PLSB include Sutera Bakti Sdn Bhd, which controls Percetakan Nasional Malaysia Bhd, and a 31.9% stake in diversified media company Media Prima Bhd.

It is worth recalling that Syed Mokhtar, via PLSB, had acquired FELDA’s 20% stake in Tradewinds (M) Bhd, a unit of Tradewinds Corp, the holding company of the Tradewinds group, which controlled Bernas and Central Sugars in late 2012 to early 2013. PLSB offered RM9.30 per Tradewinds (M) share and forked out RM551.43 million for FELDA’s 59.29 million shares in the company.

Syed Mokhtar acquired the stake in Tradewinds (M) when his vehicle Restu Jerneh Sdn Bhd acquired 32% of Pernas International Holdings Bhd (which morphed into Tradewinds group) for RM497 million in 2002, paying Perbadanan Nasional Bhd RM2.10 for each Pernas share and 64 sen for each Pernas warrant.

FELDA opposed to asset injection

It is noteworthy that FELDA has seemingly been opposed to Syed Mokhtar’s asset injection plan. Its chairman Datuk Seri Idris Jusoh is understood to have written to FGV’s board members individually, stating that the government agency would oppose the plan by the businessman at the EGM held to approve the corporate exercise.

At a media briefing by FELDA on the plan to terminate its land lease agreement (LLA) with FGV, Tan Sri Abdul Wahid Omar, who is chairman of the task force aimed at reviving FELDA, said the government agency had “no intention to dilute the (33.66%) interest” it held in FGV, meaning that it did not support Syed Mokhtar’s plan to inject assets into FGV, which would dilute FELDA’s holding in the company. This came about when reporters asked Abdul Wahid and Idris what the government agency would do with its 33.66% stake post-termination of the LLA.

The LLA involved FGV leasing 350,733ha of plantation land held by FELDA for a 99-year tenure starting Nov 1, 2011. The termination of the LLA, however, would involve FGV being compensated — a sum based on the average profit per mature hectare for the entire leased land (based on its latest audited financial statements at the point of notice) multiplied by the loss of FGV’s future profits.

FGV would be compensated for 10 years of future profits should the LLA be terminated less than eight years from the last replanting or five years of future profits should the agreement be terminated more than eight years after the last replanting.

It is not clear whether FELDA will go ahead with the termination of the LLA now that it has made a mandatory takeover offer.

It is noteworthy that PLSB’s proposal was slated to take effect after FELDA terminated its LLA with FGV. All eyes will be on Syed Mokhtar to see if there will be a counter offer for FGV.

 

 

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