INDONESIA-BASED Rajawali Group’s consolidation of its plantation assets, which culminated in the creation of PT Eagle High Plantations Tbk, drained its immediate cash flow. This, say sources, may explain its recent quick deal with Felda Global Ventures Holdings Bhd (FGV) — to secure funds to assure its creditors.
A glaring point in FGV’s proposed acquisition of a 37% stake in Eagle High from Rajawali is the 23% deposit of US$174.5 million (RM656.12 million) that the Malaysian company has agreed to fork out. Sources believe this may be linked to a substantial share-backed loan facility taken by Rajawali that is due next month.
The outstanding loan is a US$74.5 million private placement junior tranche backed by shares in Eagle High. According to a May 6 report by corporate debt research firm Debtwire, a drop in Eagle High’s shares this year triggered a cash top-up requirement on the equity collateral covering the loan.
This covenant covers the junior lien as well as a US$275 million senior lien by Credit Suisse, which is the arranger of the two-tranche debt capital. Both the junior and senior lien is secured against the same pool of Eagle High shares that forms the collateral.
“The holders of the junior lien allowed Rajawali to top up its collateral requirement with real estate assets instead of cash. Now that it has secured a deal with FGV, the group should have no problems in assuring its creditors that the cash is coming,” says a source.
According to Debtwire, the new property collateral comes from Rajawali’s hospitality assets. Upcoming projects include the St Regis hotels in Langkawi and Jakarta, the latter of which is part of an integrated development initiated by Rajawali and Singapore sovereign wealth fund GIC in a US$500 million joint venture.
The possibility of a default coincided with a sharp drop in Eagle High’s shares between February and April as investors began to sweat over the potential disposal of the collateralised shares. The stock hit a low of IDR245 on May 4 or just before the firm reached an agreement with its creditors.
In a reply to The Edge, Rajawali clarifies that it has yet to receive FGV’s deposit, which is fully refundable and accrues interest. At the same time, it refuses to elaborate on the short-term debt. “Rajawali has not received the deposit; the timing depends on the completion of the prevailing process under the heads of terms. However, as a private company, we do not discuss our treasury operations.”
Rajawali took the one-year loan last July to kick-start the consolidation of its plantation assets. The Credit Suisse junior loan totalled US$235 million and carried an interest rate of 15% per annum. Of the amount, some US$160.5 million has already been repaid.
The purpose of the junior tranche was for Rajawali to buy out the equity interest held by its joint-venture partner, Louis Dreyfus Commodities, in its main plantation arm Green Eagle Holdings Bhd. The French firm received an estimated US$300 million for giving up the stake last July.
Eagle High, formerly PT BW Plantations Tbk, was created as a result of a reverse takeover by Green Eagle last October, which also included additional land injections by Rajawali. BW Plantations fell from IDR1,000 to IDR400 last September in anticipation of the deal, which was financed by a highly dilutive six-to-one rights share issuance.
Poor take-up of the rights shares by third parties resulted in Rajawali holding more Eagle High equity than it intended. As the underwriter of the share sale, the group ultimately ended up with a 65% stake in Eagle High — valued at US$620 million based on IDR400 per rights share — rather than the 56% it had in mind.
A senior banker with an international commercial bank says Rajawali approached a prominent Malaysian bank in March to refinance its debt, given the looming July deadline for the junior loan. By then, the group had also reached out to several Malaysian parties about the possibility of an outright sale of a stake in Eagle High in order to pay off its debt, he adds.
The proposed refinancing scheme fell through but by late April, Malaysian intermediaries had also introduced Rajawali to prospective buyers, including FGV and Lembaga Tabung Haji, the banker reveals. FGV announced its proposed acquisition on June 12.
“Bear in mind that the general terms of the RM2.8 billion deal were wrapped up in just seven weeks, giving the perception that the deal was fast-tracked, possibly to accommodate Rajawali’s needs,” the banker says.
Rajawali confirms that other parties were in the picture but does not name names. “We were approached by a number of parties who expressed interest in partnering us but we do not intend to comment on our discussions with them.”
While the whole deal will take some time to be completed — FGV has indicated that an extraordinary general meeting to approve the Eagle High acquisition will only be convened in October — the deposit could prove crucial to Rajawali.
According to FGV, the deposit will only be paid after all the required approvals have been obtained from Bank Negara Malaysia, although it did not specify when.
Settling the junior lien is important as the debt holders of the tranche comprise institutions such as hedge funds unlike the senior tranche, which is held by the group’s main banker, Credit Suisse.
Failure to meet covenants in the lien could trigger a technical default, which could then lead to a fire sale of the collateralised Eagle High shares. The assurance of new cash coming in, such as FGV’s deposit, is therefore essential to keep Rajawali’s creditors at bay.
This article first appeared in The Edge Malaysia Weekly, on June 29 - July 5, 2015.
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