Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on February 26, 2018 - March 4, 2018

THE value of the Federal Land Development Authority’s (FELDA) investment in Indonesia-based PT Eagle High Plantations tbk last April has declined by close to 50%, translating into a paper loss of RM1.13 billion.

The investment was done via a subsidiary despite the advice of a professional advisory firm. FIC Properties had acquired 11.66 billion shares, or a 37% stake, in Eagle High in April last year for US$505.4 million or RM2.26 billion from Rajawali Group. The price of IDR580 per share was a whopping 95% premium to the closing price at the time.

Last Friday, Eagle High was trading at IDR228 per share. This means that FIC Properties is sitting on a paper loss of IDR4.11 trillion, or RM1.13 billion — a loss of about 50% over the last 10 months.

Over the past 52 weeks, Eagle High has been trading at between IDR178 and IDR380. At its peak within that period, it was trading at a discount of 34.5% to what FIC Properties paid.

In announcing the acquisition, FELDA had said that the share price was not the accepted valuation method when it comes to a plantation company, but rather, enterprise value per hectare (EV per ha). It paid US$16,000 EV per ha for the 37% stake, and said it was in line with other acquisitions of plantation companies in Indonesia during that time.

Eagle High’s plantations are located in Indonesia, with 105,080ha of planted mature areas in Kalimantan, 6,455ha in Papua and 1,267ha in Sumatera. The group also has 16,895ha of immature planted area in Kalimantan, 2,855ha in Papua and 905ha in Sumatera.

An article by the International Palm Oil Monitor (IPOM) recently suggested that the due diligence report prepared by KPMG detailed numerous concerns or improprieties within Eagle High, including cash flow problems, excessive borrowings and repayment to the banks.

The audit firm also stated that the price to be paid by FIC Properties was too high, according to IPOM, an independent platform for monitoring the development of the global palm oil industry.

FELDA owns approximately 850,000ha of plantation land bank. Since it only has an associate stake in Eagle High, the investment does not increase its plantation land bank.

In response to the IPOM article, Eagle High says the synergies stemming from the strategic partnership with FELDA have improved its financial performance during the nine months ended Sept 30, 2017 (9MFY2017). Eagle High recorded a lower net loss of IDR215.18 billion or RM59 million, compared to IDR303.35 billion during the corresponding period in 2016. FELDA’s share of the losses amounted to RM21.83 million.

Net sales increased by 40.2% to IDR2.237 trillion or RM640.7 million, compared with the corresponding period a year ago. Eagle High also recorded a cash inflow of IDR196 million during the period, compared with an outflow of IDR540.9 million in 9MFY2016.

Note that Eagle High has been loss-making since the third quarter of 2015.

 

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