This article first appeared in The Edge Malaysia Weekly, on December 14 - 20, 2015.

Felda Investment Corp Sdn Bhd (FIC) — believed to be the latest party to be wooed for the pursuit of Indonesia’s PT Eagle High Plantations Tbk — has declined to participate, citing as its reason its investment mandate, which is non-plantation businesses.

Sources tell The Edge that FIC, the wholly-owned subsidiary of the Federal Land Development Authority (FELDA), had been approached to buy a stake in Eagle High after Felda Global Ventures Holdings Bhd (FGV) and PT Rajawali Capital International failed to agree on the terms of sale by the Nov 30 deadline.

“FIC was asked to have a look at buying a stake in Eagle High but it is not interested in getting involved in the deal,” a source says.

Approaching FIC is probably not the only option the parties involved are exploring. Sources say FELDA, the parent of FIC, could be mulling a direct acquisition.  FELDA is under the purview of the Prime Minister’s Office.

Meanwhile, FGV remains in active negotiation with Rajawali Capital, but for a smaller stake. It is understood that both potential buyers want to push the deal through.

The source says, “FELDA and FGV want to be a part of the deal but both are facing some issues. FELDA does not have the cash flow to support such an acquisition.”

That FIC has opted out should not come as a surprise. FELDA’s investment arm is mandated to invest only in non-plantation-related businesses. It is currently involved in the property development and hospitality sectors.

FIC holds substantial stakes in several companies listed on Bursa Malaysia, including a 25.3% stake in IRIS Corp Bhd (fundamental: 0.35; valuation: 0.90), 72.3% in Encorp Bhd (fundamental: 0.45; valuation: 1.10) and 9.73% in Barakah Offshore Petroleum Bhd (fundamental: 1.70; valuation: 0.50).

In a proposal made on June 12, FGV (fundamental: 1.15; valuation: 2) was to buy 30% equity interest in Eagle High for US$632 million cash, and a further 7% stake through the issue of 95 million new FGV shares. The deal fell through, though, with FGV citing poor market conditions in the palm oil sector as the reason. However, it assured investors that it remained interested in the acquisition.

FGV says it is still in talks with Tan Sri Peter Sondakh’s Rajawali Capital, which holds 65.5% equity interest in Eagle High. The loss-making local plantation giant says it is “in discussion for a possible different mode of investment in Eagle High [that] may comprise, amongst others, [a] potential joint venture, offtake agreement or other forms of mutually agreed collaborations”.

Meanwhile, FGV thinks the asking price is too steep and wants to renegotiate. But Rajawali Capital has refused to budge and unless it changes its mind, the parties could be stuck in negotiation for some time.

One source says, “There is an impression that the Eagle High deal is off but I can say that both FELDA and FGV are negotiating hard for it to happen. The exact structure of the deal has not been agreed on but FGV is looking for close to a 30% discount on Rajawali Capital’s asking price and a smaller stake after seeing that the market was very critical of the original terms. Everyone was unhappy with the price, so the deal had to be put on hold for the time being.

“There is concern among planters that buying land in Indonesia is not going to be an easy affair in the future. Indonesia has already tried to limit foreign ownership in plantation companies. So, FGV and FELDA see this as an opening to get in.”

The source claims that FELDA, FGV and Rajawali Capital are looking to seal the deal as early as next month.

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