PLANTATION company FGV Holdings Bhd is understood to have sought direction on the way forward from its parent, the Federal Land Development Authority (FELDA), which owns an 80.99% stake in the company. It offered two options — for the development authority to either sell down its shareholding in FGV, or for FGV to issue new shares to meet the 25% public spread requirement, sources familiar with the matter tell The Edge.

“From what we know, the management of FGV has written to them [FELDA], seeking some direction, and is awaiting a reply,” one source says.

There is also talk that regulator Bursa Malaysia has given FGV six months to meet its public shareholding spread, but this remains conjecture at press time.

FELDA’s response to FGV will be interesting as the latter’s management team and the high-level executives at FELDA have not exactly seen eye to eye on the privatisation move. While FELDA was looking to delist the company, FGV’s management had sought to keep it publicly traded, to maintain an adequate transparency level.

Interestingly, Tan Sri Abdul Wahid Omar, who helms the task force set up by the government to revive FELDA, is also the chairman of Bursa Malaysia.

It is also noteworthy that FGV chairman Datuk Azhar Abdul Hamid, who is regarded as a strong corporate personality, announced his departure last Friday. Azhar’s departure seems likely to weaken the FGV management’s stand against its parent company.

FELDA’s top brass and FGV’s management were also at loggerheads when the former’s chairman Datuk Seri Idris Jusoh announced that it was looking to terminate a 99-year land lease agreement (LLA) between the two.

FGV, via the LLA, controls and operates 350,733ha of plantations owned by FELDA. Other than the plantations, FGV also has 68 palm oil mills, which FELDA claimed to be interested in buying, as part of its restructuring.

However FELDA’s proposed termination of the LLA raised questions as the compensation costs would run into RM5 billion to RM6 billion, depending on the price tag of FGV’s palm oil mills.

While talk of the termination was going on, FGV’s share price was depressed and hit a low of 61 sen last December. During this time, FELDA acquired a block of FGV shares, triggering a mandatory general offer (MGO) at RM1.30 per share.

FELDA’s offer for FGV expired on March 15, leaving the former with an 80.99% stake in the latter. This corporate exercise came about on Dec 8 last year, when the parent company announced its plan for an MGO of FGV at RM1.30 per share. This followed the acquisition by FELDA (which had 34.66% equity interest in FGV) of a 6.1% stake held by Kumpulan Wang Persaraan (Diperbadankan) and 7.78% equity interest held by Ministry of Finance-owned Urusharta Jamaah Sdn Bhd for RM658 million, or RM1.30 a share.

Together with Koperasi Permodalan Felda Malaysia (KPF) — a party acting in concert with FELDA — its shareholding level in FGV rose to above the 50% threshold, triggering the MGO.

With FELDA holding 80.99% and the Pahang government controlling 5%, FGV’s free float is now about 14%.

On its plans, FGV says, “With regards to the recent outcome of the FELDA takeover, FGV remains as a public listed company (PLC) and will make further announcements if there are any developments in respect of this matter. FGV will continue with its transformation initiatives in the best interests of its shareholders.

“Furthermore, FGV will continue with existing efforts and expedite the implementation of FGV’s strategy to focus on growing high value-added businesses such as integrated farming and branded consumer products. In addition, several initiatives emphasising the implementation of best practices to enhance operational efficiency, fast go-to-market plans and cost optimisation efforts are underway across the group.”

FELDA’s plans are unclear at this juncture, but many are questioning what it hoped to achieve from the privatisation, and what benefit such a move would have for the settlers.

Its chairman Idris has said that the government development authority would turn the corner in 2022. This is likely to happen because of replanting exercises and other earnings enhancing steps undertaken by FGV, and strong crude palm oil (CPO) prices.

CPO prices are testing the RM4,000 a tonne band for the first time since 2008. They hit a high of RM3,906 per tonne on March 15. At press time, CPO futures were trading at RM3,535 per tonne, having gained more than 80% since May last year.

Better CPO prices and adjustments made by the management have impacted FGV’s earnings positively. For 4QFY2020 ended December, FGV chalked up a net profit of RM134.93 million from RM4 billion in revenue. For FY2020, the company registered a net profit of RM150.02 million from RM14.07 billion in revenue. In FY2019, it suffered a net loss of RM246.17 million from RM13.26 billion in revenue.

What seems clear is that FELDA upped its stake from 33.66% or 1.23 billion shares, to 78.04% or 2.85 billion shares for a steal. (The other 2.95% that makes up the 80.99% in FGV is held by KPF.)

At RM1.30 per share, FELDA forked out RM2.13 billion for 44.38% in FGV. At Friday’s close of RM1.40, that 44.38% is valued at RM2.27 billion, or up RM14 million already.

With FGV’s management undertaking replanting exercises on 15,000ha a year, the age profile of its palm trees have been declining. At the time of its listing, about 53% of FGV’s oil palms were more than 20 years old.

When FGV’s shares were floated in 2012 at RM4.55 each, FELDA gained close to RM6 billion from an offer for sale of shares, which means this acquisition at RM1.30 is akin to its second bite of the cherry.

But will the development authority maintain FGV on its current trajectory, where it has started making profits, or change direction?