This article first appeared in The Edge Malaysia Weekly on December 14, 2020 - December 20, 2020

THE Federal Land Development Authority’s (FELDA) offer of RM1.30 per share to Kumpulan Wang Amanah Diperbadankan (KWAP) and Urusharta Jamaah Sdn Bhd (UJSB) for their stakes in FGV Holdings Bhd has triggered a mandatory takeover offer and raised many questions.

To recap, last week, FELDA — which had a 33.66% stake in FGV as at March 20, 2020 — sought to acquire UJSB’s 7.78% for RM368.8 million and KWAP’s 6.1% for RM289.2 million. In a nutshell, FELDA is increasing its shareholding by 13.88%, which will cost it RM658 million. (Note that there has not been any announcement on changes in FELDA’s interest in FGV since March.)

However, FELDA announced, via Maybank Investment Bank, that it has 21.24% in FGV and that “upon completion of the proposed acquisition, FELDA together with PACs (persons acting in concert) will collectively hold more than 50% of FGV shares. Accordingly … FELDA will be obliged to extend the proposed mandatory takeover offer.”

FELDA, however, cautioned, “The completion of the CSPA (conditional share purchase agreement) is subject to the fulfilment of a condition precedent, which is, the receipt and acceptance by FELDA of a letter of offer in relation to the financing of such amount as required for FELDA to fund the payment of the purchase consideration for the proposed acquisition and to undertake the proposed mandatory takeover offer, issued by FELDA’s financier, and such financing is confirmed by the financier/arranger to be available for utilisation/drawdown by FELDA.”

Certain quarters are sceptical over FELDA making such offers prior to securing funding. However, the CEO of Minority Shareholders Watch Group (MSWG), Devanesan Evanson, explains, “The funding ability only needs to be disclosed in the offer documents when the mandatory takeover offer is made to the shareholders.

“At this stage, the proposed share acquisition from both KWAP and UJSB is pending conclusion. FELDA, as a government agency, is likely to obtain the required funding … if it wants to. There is a residual risk that the exercise may be aborted due to FELDA stating that it is unable to obtain the funding,” he says in an email reply to questions from The Edge.

Cash-strapped FELDA has been looking to issue debt papers to help solve its woes. The green light for a government-guaranteed sukuk was obtained about two months ago. The potential sukuk issue of RM9.9 billion will largely be used to settle existing borrowings, according to Tan Sri Abdul Wahid Omar, who is chairman of a task force set up by the government to revive FELDA.

At a press conference on FELDA’s termination of its land lease agreement with FGV at end-October, Abdul Wahid said, “A chunk of the proceeds of the sukuk will be for the repayment of existing borrowings, and some for working capital.”

To put things into perspective, FELDA has amassed debts of RM10 billion.

Meanwhile, FGV has said that it has paid more than RM2.5 billion to FELDA in various forms from 2012 to 2019. The proceeds from FGV’s initial public offering in 2012, meanwhile, netted FELDA RM5.7 billion (see main story).

Another point of contention highlighted by Devanesan is the lack of clarity about whether FELDA plans to delist FGV or maintain its listing status.

He says, “FELDA has not stated whether it intends to maintain the listing status, and this is both troubling and puzzling. At this point in time, FELDA would know its intention regarding the listing status. This is important information for the minority shareholders to make their investment decisions.”

A market watcher says he would also like to know who the persons acting in concert with FELDA are. FELDA, with other government agencies, have about 73% equity interest in FGV. These agencies include UJSB, Employees Provident Fund (EPF), Koperasi Permodalan Felda Malaysia Bhd (KPF), the Pahang government, Sawit Kinabalu Sdn Bhd (which is under the Sabah government), Lembaga Tabung Angkatan Tentera, and Permodalan Nasional Bhd’s funds.

Nevertheless, a clear-cut candidate to act in concert with FELDA would be KPF, a sort of sister company of FELDA’s that is controlled by the FELDA settlers’ cooperative.

On June 3, KPF ceased to be a substantial shareholder of FGV after selling 12 million shares and reducing its stake to 4.75%. Thus, FELDA’s stake in FGV, including that currently held by UJSB and KWAP, would be 47.54%. If the block held by KPF is added, it would nudge FELDA’s shareholding to 52.29% — assuming KPF has not sold down further.

Devanesan says the offer of RM1.30 per share is fair.

“I suppose the question is whether the offer is reasonable and fair. The share price was RM1.27 before the offer was made. As such, there was a slight premium. The offer price of RM1.30 is well above the net asset per share of RM1.13 as at end-September,” he notes.

FGV’s latest quarterly earnings per share (EPS) was 3.8 sen per share, while EPS for the cumulative last three quarters was 0.4 sen. That, says Devanesan, is an indication of the reasonableness and fairness of the offer price. He adds that minority shareholders will have to wait for the FGV board and independent adviser to give their opinion before making an informed investment decision.

“The offer price of RM1.30 must be juxtaposed with two important factors affecting the oil palm industry: higher trending CPO prices and the acute shortage of foreign oil palm workers. It is obvious that both KWAP and UJSB are happy with the offer price based on Maybank’s announcement,” he states.

Some market watchers are wondering if KWAP and UJSB should wait for another potential offer — from Tan Sri Syed Mokhtar Albukhary’s Perspective Lane (M) Sdn Bhd (see sidebar “Will Syed Mokhtar make a counter-offer for FGV?”).

To this, Devanesan comments, “I am not aware of any evidence that Syed Mokhtar’s Perspective Lane had made any offer for the stake held by KWAP and UJSB.

“There was talk that Perspective Lane had wanted to inject his plantation assets into FGV for shares. As far as KWAP and UJSB are concerned, the only offer they received was from FELDA, and they decided to accept it.”

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