This article first appeared in The Edge Malaysia Weekly, on April 11 - 17, 2016.

Felda Global Ventures Holdings Bhd (FGV) has called off its proposal to purchase a 55% stake in China-based Zhong Ling Nutril-Oil Holdings Ltd for RM976.25 million due to unfulfilled conditions.

In a filing with Bursa Malaysia last Friday, FGV says conditions precedent set out in the sale and purchase agreement 1 and 2 (SPA1 and SPA2) could not be fulfilled within the stipulated time frame, nor have they been waived.

“The purchaser (FGV) has issued termination notices, both dated April 8, 2016, to the vendors and Zhong Hai [Investment Holdings Ltd] to terminate SPA1 and SPA2 in accordance with the relevant provisions of SPA1 and SPA2,” the filing reads.

“The purchaser will not be pursuing or taking any legal action pursuant to the above-mentioned termination,” it adds.

FGV also says the termination of SPA1 and SPA2 will not have any financial impact on the group.

On Feb 26, the company announced that it had inked two SPAs with Zhong Hai and other vendors for the transfer of shareholding of 26.4% and 28.6% respectively in Zhong Ling for RM537.05 million and RM439.2 million.

Under the agreements, the parties had agreed to fulfil precedent conditions — including approval from regulators Bank Negara Malaysia and the Ministry of Finance — within five business days.

FGV announced to Bursa on March 14 that an application to one of the regulators had been cancelled, pending more information on the investment from the company.

Three days later, it announced that it had received the green light from the Ministry of Finance for the proposed acquisition.

Consequently, FGV announced two extensions — the first, from March 4 to March 18, and the second, to no later than April 8 or such other date mutually agreed between all parties — to meet the precedent conditions.

It should be noted that after first declaring that it did not require shareholders’ approval for the purchase, Bursa informed FGV that it indeed needed their consent, in compliance with listing requirements.

FGV’s move to acquire the stake in Zhong Ling — a Cayman Islands-incorporated firm — had raised eyebrows as some quarters questioned the apparent rush to propose another acquisition abroad so soon. FGV’s plan to acquire a 37% stake in Indonesia’s PT Eagle High Plantations Tbk, initially priced at  US$680 million (RM2.65 billion), is still pending.

Furthermore, FGV announced to Bursa that it would be paying Zhong Hai a higher price per share than the other vendors as it offered a better valuation.

FGV also said that not only did Zhong Hai agree to bear all share adjustments relating to the variances between the estimated and audited profit after tax for financial years 2014 and 2015, it also agreed to bear any variances to the profit guarantees for the next three financial years — 2016, 2017 and 2018.

It added that if net profit for FY2014 and FY2015 were below RMB309.7 million (RM186.57 million) and RMB313.5 million respectively, Zhong Hai would have to transfer to the FGV group additional shares in Zhong Ling.

FGV said the acquisition in Zhong Ling is a strategic expansion initiative for the group to tap the growing potential coming from the latter’s newly established operations in Jiangsu, China; to leverage the Chinese group’s expansion plan and distribution coverage; and to capitalise on China’s growing demand.

Zhong Ling, which started its operation with a small production facility in Quanzhou, Fujian, in 1995, produces a variety of edible oils that include pure peanut oil, corn oil, sunflower oil, extra virgin olive oil and organic camellia oil.

The proposals to acquire a shareholding in Zhong Ling, and a stake in Eagle High were among the controversial decisions made under former FGV CEO Datuk Mohd Emir Mavani Abdullah’s watch.

After months of speculation, FGV announced on March 29 that Mohd Emir would be replaced by the head of the group’s downstream operations, Datuk Zakaria Arshad, on April 1. This raised questions of whether negotiations on deals signed during Mohd Emir’s tenure would be scuttled.

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