RAJAWALI Group has been keeping mum about its planned sale of a 37% stake in PT Eagle High Plantations Tbk to the Federal Land Development Authority (FELDA) for US$505.4 million (about RM2.25 billion) — a huge premium to the company’s current share price. In an email response, Rajawali deputy managing director Satrio Tjai shares some of his thoughts on the matter.

The Edge: You reduced the price from US$680 million to US$505.4 million — a 26% discount. What was your original cost of investment?

Satrio Tjai: FELDA was a tough negotiator. In the end, we agreed on the steep discount because we shared the vision of creating the world’s largest CPO (crude palm oil) player, and we considered potential synergies, current economic conditions and additional value creation that could be unleashed through this partnership. In any investment decision, the original cost is not relevant. Having said that, what is the cost of obtaining land bank when a moratorium is imposed?

What are the merits of Eagle High partnering FELDA? On a broader note, what are the merits of Rajawali partnering FELDA?

There is considerable synergy between the two sides. Eagle High is a critical component of Rajawali, and hence, all merits apply to us as a group. I would highlight three benefits of partnering FELDA. First is its strong downstream capabilities, which complements Eagle High’s upstream capacity. Second is its agro-technology and established research and development expertise, which include the areas of seedling and fertiliser. And third is the ability to develop and implement world-class sustainability practices.

On a broader note, Rajawali is a firm believer of stronger bilateral ties between Malaysia and Indonesia to move forward the agenda of the Council of Palm Oil Producing Countries (CPOPC), of which both countries are founding members. FELDA’s investment in Eagle High is a positive development for the industry and the two countries.

Do you think Eagle High is worth so much? Your market capitalisation is only about US$630 million.

The most relevant approach to value CPO plantations is enterprise value per hectare or EV/ha. The market capitalisation does not reflect the true value of Eagle High. Moreover, Eagle High’s shares are illiquid and you will not be able to obtain a 37% stake through market purchase. Just as a point of consideration, when Rajawali took up the rights offering of Eagle High, it was done at a significantly higher valuation than US$630 million.

Certain quarters say the acquisition by FELDA is being pushed politically as Malaysia’s Prime Minister Datuk Seri Najib Razak is close to Tan Sri Peter Sondakh. What are the selling points of Eagle High in your opinion?

Tan Sri Peter Sondakh is a well-established Indonesian businessman with relationships not just in Malaysia but also internationally. Rajawali is also not a stranger when it comes to doing business with Corporate Malaysia.

Rajawali sold its stake in Excelcomindo (now known as PT XL Axiata Tbk) to Telekom Malaysia Bhd, which allowed the Malaysian company to enter the highly lucrative and strategic telecommunications industry in Indonesia.

We, in turn, invested in Malaysia — for example, Sheraton Perdana (now known as Westin Langkawi), Sheraton Imperial Kuala Lumpur and, most recently, St Regis Langkawi and the Langkawi International Convention Centre.

As alluded to before, the key selling points of Eagle High are its huge land bank, the young age profile of its trees, experienced management team with a solid track record and better efficiency in terms of oil extraction.

Why has this sale taken 18 months to conclude?

FELDA is a tough negotiator, and we in Rajawali are no walkovers too. Yes, it took some time, but in the last 18 months, we have developed a tremendous mutual respect for one another. This is the fundamental aspect of a successful partnership.

Does Rajawali plan to increase its stake from the 37.06% when the deal is concluded?

Our key focus at present and in the immediate future is on a successful partnership with FELDA.

Would Rajawali or Eagle High be averse to any corporate exercise involving equity in Felda Global Ventures Holdings Bhd?

Again, our key focus is on unlocking the value in our new-found partnership with FELDA. Eagle High is now entering an exciting growth phase, so it’s safe to say that our focus is on that.

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