FGV confirms no longer eyeing stake in Eagle High

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This article first appeared in Corporate, The Edge Malaysia Weekly, on July 25 - 31, 2016.

FELDA Global Ventures Holdings Bhd (FGV) is no longer looking to acquire a stake in Indonesia’s PT Eagle High Plantations Tbk, says president and CEO Datuk Zakaria Arshad. “[FGV is] not in M&A (merger and acquisition) mode ... that is the best I can say for the moment. So, for now, it (the Eagle High acquisition) has been put aside,” he tells The Edge after a Hari Raya open house at Wisma Felda.

Asked if other entities such as Felda Investment Corp Sdn Bhd are still in talks to buy the stake in Eagle High, Zakaria says, “There may be others, but it is not FGV.”

In June last year, publicly traded FGV, a 20% unit of the Federal Land Development Authority (Felda), had announced plans to purchase a 30% interest in Eagle High for US$632 million in cash and a further 7% via an issue of 95 million new FGV shares worth US$48 million, for a total of US$680 million or RM2.89 billion then.

However, in December last year, FGV announced “a possible different mode of investment in Eagle High” which could “comprise, amongst others, potential joint venture, off-take agreement or other form of mutually agreed collaborations”.

In March this year, when there was talk that FGV could have opted out of the Eagle High deal or only wanted a small stake of about 5%, the company said it was still looking at a possible different mode of investment in Eagle High and “is not in a position to comment and confirm”, in answer to a query by Bursa Malaysia.

The speculation that it was pulling out of the deal has finally been confirmed.

The 30% stake is owned by the Rajawali Group — a vehicle of well-connected businessman Tan Sri Peter Sondakh — which has 65.5% equity interest in Eagle High.

Eagle High is Indonesia’s third largest plantation company and has a landbank of 419,006ha across the provinces of Sulawesi, Kalimantan, Papua and Sumatra, 147,000ha of which have been planted. The average age of its oil palm trees is below seven years.

In September 2014, Indonesian PT BW Plantation acquired Green Eagle Holdings Pte Ltd, which had a 196,000ha of plantations in Indonesia, for IDR10.5 trillion (US$861 million then). A month before, BW Plantation had acquired nine plantation companies with a total landbank of 129,000ha from the Rajawali Group. The merged entity is Eagle High.

According to reports, Zakaria, who took the helm at FGV in March, had removed the M&A team, implying that there would be no more acquisitions in the near term.

The move to pull out of the Eagle High deal may be viewed positively by the market. When FGV announced the deal to acquire the 37% stake in Eagle High, the company’s shares shed 21 sen or 11.29% to end at RM1.57 after trading resumed. FGV’s stock closed last Friday at RM1.78. Over the past month, the stock has gained 25 sen.

For its first three months of FY2016 ended March, FGV suffered a net loss of RM65.54 million from RM3.75 billion in revenue. For the corresponding period a year ago, it registered a profit of RM3.57 million from RM2.71 billion in revenue.

As at end-March this year, the company had RM2.4 billion in deposits, cash and bank balances while short and long-term liabilities stood at RM3.2 billion and RM404.47 million respectively. Much of FGV’s problems stem from its ageing trees. Of its 332,586ha that have been planted, close to half the trees are above 20 years. The company has 7,200ha in Malaysia and 12,800ha in Indonesia that are unplanted.

To overcome this problem, FGV has come up with a programme to replant 15,000ha a year, which would reduce the average age of its trees to about 12 years by 2020.