Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on November 2 - November 8, 2015.

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Felda Global Ventures Holdings Bhd (FGV) is understood to be looking to get a “substantial discount” in its proposed acquisition of PT Eagle High Plantations Tbk, a source familiar with the matter tells The Edge.

The source declined to give a number but indicated that it is quite a bit more than 30% of the price being negotiated with PT Rajawali Corp, which has a 65.5% stake in PT Eagle High. PT Rajawali is controlled by well-connected Indonesian businessman Tan Sri Peter Sondakh.

“But I have to make clear this is what FGV is looking at. We may not get what we want. We are looking at a much, much lower price than what we offered, quite a big discount actually.

“It’s been tough, which explains why it’s taken so long, but the ringgit is down, CPO (crude palm oil) is also not strong — this isn’t our fault, but then again, it’s not theirs (PT Rajawali’s) either. Everyone is working very hard [to close the deal],” the source says.

The ringgit was trading at 4.3 against the greenback last Friday, compared with an average of 3.74 when the deal was announced in June. At that time, CPO was trading at an average of close to RM2,280 per tonne. Now, the third month contract has inched up to just above RM2,360 per tonne, still considerably lower than the RM3,550 and above per tonne in April 2012.

Asked if the deal could be concluded by year end, the source says it is possible. Last Friday, FGV had announced that “the company and the vendors are still in the midst of negotiating the terms of the definitive documentation and aim to sign the definitive documents no later than Nov 30, 2015.”

In mid-August, FGV had announced that it had “substantially completed due diligence. The company and the vendors are in the midst of finalising confirmatory due diligence and negotiating the terms of the definitive documentation and aim to sign the definitive documents as soon as reasonably practicable, and in any event by no later than Oct 31, 2015.”

To recap, FGV had offered to pay US$632 million in cash for a 30% block of shares and 95 million new FGV shares for an additional 7% stake in Eagle High, which works out to about US$47 million.

FGV is also looking to acquire as much as 95% of Rajawali’s sugar business, forking out US$67 million in cash.

FGV announced the deal on June 11, and created quite a stir with the high valuations pegged on PT Eagle High.

In a report after the deal was announced, UOB Kay Hian said it expected the acquisition of PT Eagle High to be earnings dilutive and FGV’s gearing to increase to 0.8 times from 0.3 times as a result of its acquisition of PT Eagle High and the earlier acquisition of Golden Land Bhd’s Sabah assets for RM655 million.

Reports back then had pegged PT Eagle High’s consensus net profit forecast at IDR407 billion for 2015 and IDR611 billion for 2016. Assuming FGV took 80% debt financing, it would dilute its earnings based on the enlarged share base.

FGV’s cash hoard was also slated to decline to RM1.68 billion from RM2.87 billion as at end-March this year. It is noteworthy that at end-March 2013, FGV had RM6.2 billion in its kitty.

Also a point of contention for critics of the proposal was PT Rajawali’s acquisition cost for BW Plantations Tbk, since renamed PT Eagle High. FGV is acquiring PT Eagle High at IDR775 per share, 72% higher than PT Eagle High’s share price of about IDR450 at the time the deal was struck. PT Rajawali had acquired a chunk of BW Plantations at an average price of IDR427 per share.

FGV ended trading last Friday at RM1.78, giving the company a market capitalisation of RM6.4 billion.

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