KUALA LUMPUR: Shares in Felda Global Ventures Holdings Bhd (FGV) fell yesterday to their lowest since the world’s largest plantation operator went public in June 2012 on concern it could be overpaying for a 37% non-controlling stake in Indonesia’s PT Eagle High Plantations Tbk for US$679 million (RM2.55 billion).
The stock fell as much as 11.3% to close at its intraday low of RM1.65, with 25.98 million shares traded. Its market capitalisation stood at RM6.02 billion. It was among the top most active stocks on Bursa Malaysia yesterday.
FGV has lost RM12.39 billion or 65% of its market value from its June 2012 initial public offering (IPO) price of RM4.45. Year-to-date, FGV has shed 53 sen or 24.31%, underperforming the FBM KLCI’s 2.22% decline.
FGV (fundamental: 1.15; valuation: 1.4) last Friday confirmed a report published in The Edge Financial Daily that it was acquiring a 37% stake in Eagle High — the third-largest plantation group listed in Jakarta — from PT Rajawali Capita for US$679 million via US$632 million cash and the issuance of 95 million new FGV shares valued at US$47 million.
It is also acquiring a 95% stake in a 47,745ha sugar plantation land in Papua, Indonesia for US$67 million cash.
However, analysts are of the view that FGV’s proposed acquisition of Eagle High is expensive at US$17,400 per ha.
“The transaction price for Eagle High is estimated at 770 rupiah (22 sen) per share, a 71% premium to its last traded price of 450 rupiah per share, and an enterprise value of US$17,400 per ha,” said Maybank IB Research in a report yesterday.
“After netting borrowing costs, this deal is most likely to be earnings per share (EPS) negative in the near term. Based on Bloomberg estimates, the acquisition price translates into a forward 2015/2016 price-earnings ratio (PER) of 52 times/38 times,” it said, adding that it expects some near-term selling pressure on FGV following the announcement of this deal.
CIMB Research is also negative on the deal as it feels that the concerns outweigh the positives. “We are of the view that the proposed acquisition price for Eagle High is too high.”
CIMB Research also raised concern that the parties entered into an agreement on June 12, 2015, in which FGV shall pay US$174.5 million that shall be considered as down payment for the proposed acquisitions.
“We calculated that this represents around 23% of the total transaction value of US$746 million.
“We are surprised by this term given that the group has yet to sign a sale and purchase agreement which typically requires only 10% deposit,” it said.
It added that the deal could dilute FGV’s earnings by 10% and raise the group’s net gearing ratio to 1.43 times.
“We are also concerned that the group may have to write down the value of Eagle High post-acquisition to reflect current market price. The write-down could amount to RM1.07 billion or 29 sen per FGV share,” said CIMB Research.
It also sees the Rajawali group getting a better deal in this transaction.
“This is because with a reduced stake of 31.6%, it can still continue to control Eagle High. On top of this, Rajawali group will be able to book a profit from the sale of Eagle High shares at 775 rupiah per share, most of which we believe were acquired at only 400 rupiah per share when it subscribed to the rights issue in December 2014,” added CIMB Research.
In a statement yesterday, Member of Parliament for Petaling Jaya Utara Tony Pua urged FGV to call off the proposed deal, “to prevent even further losses to investors which include the Federal Land Development Authority, settlers, the Employees Provident Fund, Lembaga Tabung Haji and various state governments”.
“There is not a single investment research house which did not have a negative report on the proposed acquisition,” he said, noting that the fall in share price has resulted in FGV being removed from the list of 30 FBM KLCI constituent stocks recently.
The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. .
This article first appeared in The Edge Financial Daily, on June 16, 2015.