IT looks like the Federal Land Development Authority’s (FELDA) acquisition of a 37% stake in PT Eagle High Plantations for a whopping US$505.4 million (RM2.24 billion) is likely to go through, as the green light from the Indonesian Ministry of Agriculture’s Direktorat Jenderal Perkebunan was obtained on Jan 25 this year.

“Looks like a done deal,” says a market watcher who has followed and questioned the acquisition.

To recap, FIC Properties Sdn Bhd, a wholly-owned unit of FELDA, announced late last year that it was looking to buy the 37% stake in Eagle High from PT Rajawali group — sans control of the company, despite the huge premium. The US$505.4 million works out to IDR580 a share, a 173% premium compared with Eagle High’s average price of IDR212 a share in November.

There have been critics aplenty concerning the acquisition. Among them are Datuk Seri Nazir Razak, chairman of banking outfit CIMB Group Holdings Bhd and younger brother of Prime Minister Datuk Seri Najib Razak, who questioned the deal on social media.

However, recently appointed FELDA chairman Tan Sri Shahrir Samad says the acquisition of Eagle High by Felda will bear fruit in the long term.

“When I look at it, it can be argued either way. You argue it’s too expensive, but you can’t buy it without paying a premium,” Shahrir says.

He adds that several safety nets have been added by the FELDA negotiators, which make the deal more palatable. While he does not share all of them, he says there is a put option for FELDA to sell the 37% stake back to the  Rajawali Group in three years, with 6% interest added on.

“But this will be revealed later... there is protection for us,” he says.

However, Shahrir was unclear as to whether it would actually be 2% accumulated over three years, or 6% accumulating to 18% over that time frame.

“I’m not so sure — we’re not supposed to reveal anything as yet,” he adds.

Shahrir also shares that FELDA has managed to coax Eagle High to put in place a dividend policy, which will ensure that the Malaysian company gets returns.

“I said I don’t care how, but I want some interim dividends by June,” Shahrir shared with The Edge in an exclusive interview.

He opines that FELDA managed to squeeze out a better deal than its 20%-owned unit, Felda Global Ventures Bhd (FGV), which in June last year announced plans to purchase a 30% interest in Eagle High for US$632 million in cash and a further 7% stake via an issue of 95 million new FGV shares worth US$48 million. That would have valued the deal at US$680 million or RM2.89 billion in total then.

For the nine months ended Sept 30, 2016, Eagle High suffered a net loss of IDR300.35 billion (RM100 million or US$22 million), and was highly geared at 1.32 times, which makes the dividend payment seem unlikely.

However, a source close to FELDA reveals that the final quarter of 2016 had been good and Eagle High seems likely to perform from now on.

An analyst who has followed and questioned the acquisition says that she would not mind FELDA giving her US$505.4 million and she returning the sum with 6% interest in three years. “I don’t see it as protection for FELDA, more like a loan for Eagle High,” she says.

As for the dividend payment, she says she will believe it when she sees it, as Eagle High’s financials do not seem strong.

Both FELDA and Rajawali Group have stated that while Eagle High’s planted area is 125,000ha, its total land bank is more than 400,000ha. However, the US$505.4 million pricing takes into account only the 125,000ha, which is already planted. And, even though only the 125,000ha was taken into account, the green light for plantation activities has been given for 300,000ha.

FELDA and Rajawali Group have also talked about setting up the Council of Palm Oil Producing Countries or CPOPC. Both Malaysia and Indonesia have set up CPOPC, and FELDA and Eagle High will play a key role in it, controlling prices and ensuring that CPO prices remain strong and stable.

Another issue concerns FELDA buying the 37% stake from Tan Sri Peter Sondakh’s Rajawali Group. Sondakh, a businessman, is supposedly close to Najib.

There are rumours about Rajawali Group needing cash, and FELDA providing a loan, but that is still conjecture.

While Shahrir is unable to reveal much about funding for the Eagle High acquisition coming from the government coffers, he does say that FELDA settlers were blasé about this whole issue as “it is not even their money”.

“It’s taxpayers’ money… That makes it worse than if it was FELDA’s own money,” says an industry observer.

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