Will FELDA be able to obtain 90% shareholding in FGV?

TheEdge Mon, Feb 15, 2021 12:00pm - 3 years View Original


IS there resistance to the RM1.30 offer made by the Federal Land Development Authority (FELDA) for the shares in FGV Holdings Bhd held by other government-owned entities?

One market watcher points out that there have not been any significantly large blocks of FGV shares crossing to FELDA, which could indicate that some of the larger shareholders are holding on to their shares.

It is also worth noting that FGV’s shares on the open market have been trading as high as RM1.32 since mid-January. On Feb 5, the counter hit RM1.32 in intraday trade.

FELDA’s unconditional mandatory takeover offer, which was extended on Feb 2, expires on Feb 16.

The shareholders the market watcher is referring to include the Pahang state government with 182.41 million shares or 5% equity interest, the Sabah state government, which has a 4.07% stake (148.54 million shares) via Sawit Kinabalu Sdn Bhd and Chief Minister State of Sabah, and the Employees Provident Fund and Permodalan Nasional Bhd, which collectively have more than 4% equity interest.

It is also noteworthy that the Minister of Finance Inc also has a 5.48% block or 200 million shares.

“You have to look out for these large blocks of shares in FGV crossing over to know the acceptance levels,” he says.

It is also understood that some of the government-linked companies (GLCs) and government-linked investment companies (GLICs) had taken up loans to acquire FGV shares at RM4.55 during the initial public offering in 2012, which may make it difficult for them to accept FELDA’s offer.

So far, FGV’s announcements indicate that FELDA’s largest acquisition of shares in FGV was on Jan 18, when it snapped up 41 million shares.

Nevertheless, with FELDA nibbling at FGV’s stock, its public shareholding spread has fallen below the 25% threshold required under the listing requirements. In an announcement on Feb 5, FELDA said FGV’s free float was down to 23.93%, and that FELDA’s stake in FGV had been bumped up to 68.26%.

Other than the Pahang government, which has a 5% equity interest, Koperasi Permodalan Felda (KPF), which is acting in concert with FELDA, has a small shareholding, which could make up part of the the 76.07%.

In June last year, KPF ceased to be a substantial shareholder in FGV, which makes it difficult to gauge how many shares the cooperative has.

To recap, on Dec 8 last year, FELDA announced its plan for a mandatory takeover offer of FGV at RM1.30 a share. This came about after FELDA, which had a 33.66% stake in FGV, acquired a 6.1% stake held by Kumpulan Wang Persaraan (Diperbadankan) and a 7.78% interest held by Urusharta Jamaah Sdn Bhd for RM658 million or RM1.30 a share, which together with KPF’s equity interest, nudged FELDA’s shareholding to above the 50% band.

At the time, the government agency had indicated that it did not intend to maintain the listing status of FGV.

However, at RM1.30 a share, FELDA’s offer is more than a 70% discount to its IPO price of RM4.55 and does not even match independent adviser RHB Investment Bank’s fair value for FGV, which was pegged at between RM1.42 and RM1.60.

“If FELDA had made an offer of, say, RM1.70, it would be a premium to the fair value, which is acceptable, but in this case, the IPO was at RM4.55, and now, FELDA is not even paying fair value,” the market watcher says.

He adds that what is even more perplexing is that FELDA, a government agency, is giving other GLCs and GLICs the short end of the stick.

It also leaves a bad taste that FELDA, prior to making the low offer of RM1.30, had proposed a plan to terminate its land lease agreement (LLA) with FGV, which could have driven down FGV’s share price.

FGV via an LLA controls and operates 350,733ha of plantations owned by FELDA for a 99-year tenure. Apart from FELDA’s assets under the LLA, FGV has 68 palm oil mills.

FELDA’s restructuring plan involves the termination of the LLA, which would incur compensation costs of RM5 billion to RM6 billion, depending on the price tag of FGV’s palm oil mills.

At RM1.30 a share, FELDA would have to fork out a little more than RM3 billion.

Former FGV president and CEO Datuk Zakaria Arshad had said in mid-January this year that FELDA had to consider the implications of taking FGV private at such a low price.

Zakaria’s contention was that FELDA’s offer was not based on future earnings and it should consider the steps taken by the existing management of FGV to improve earnings.

He had gone on to peg a valuation of RM1.70 to RM1.80 a share.

Zakaria questioned why FELDA had made very generous offers when buying into Iris Corp Bhd, Barakah Offshore Petroleum Bhd, Encorp Bhd and even Indonesian plantation outfit PT Eagle High Plantations, but chose to ignore FGV’s future earnings potential.

For its nine months ended September 2020, FGV chalked up a net profit of RM15.09 million from RM10.07 billion in revenue. For the corresponding period a year ago, FGV suffered a net loss of RM317.98 million from RM10.1 billion in revenue.

If FELDA can increase its stake in FGV to 90% or more, it will result in the suspension of FGV’s shares, and FELDA will be able withdraw its listing status. But will it get the 90% shareholding?

 

Editor's note: On Feb 11, the offer was extended for a second time from 5pm Feb 16 to 5pm Mar 2.

 

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