Friday 29 Mar 2024
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This article first appeared in Corporate, The Edge Malaysia Weekly, on May 30 - June 5, 2016.

FELDA Investment Corp Sdn Bhd (FIC) — a wholly-owned unit of the Federal Land Development Authority (FELDA) — is believed to be looking to secure a US$505 million (RM2.05 billion) loan from Credit Suisse Group to facilitate its proposed acquisition of a 37% stake in PT Eagle High Plantations Tbk, industry sources say. 

It is understood FIC had initially been in advanced negotiations with Bank of America for the funding. But after a promising start, the talks fell through, leading to Credit Suisse stepping in as a facilitator for the Malaysian government-guaranteed loan.

It is learnt that the bulk of the terms have already been negotiated, with only the minor details left to be ironed out.

“Some clauses for the money not to be rerouted back to Malaysia are also being put in. This supposedly is to reduce [any chance of] corruption,” says one industry source.

The loan amount indicates that FIC has managed to reduce the initial price tag of Eagle High of US$680 million by close to 26%.

To recap, in June last year, publicly traded Felda Global Ventures Holdings Bhd (FGV) — a 20%-owned unit of FELDA — announced plans to purchase 30% equity interest in Eagle High for US$632 million cash and a further 7% stake via an issue of 95 million new FGV shares worth US$48 million, which gave the deal a total valuation of US$680 million or RM2.89 billion then.

However, after much pressure, FGV went silent on the deal. In March this year, when The Edge wrote that the company may have pulled out of the deal, it had said, “FGV is not in a position to comment and confirm on the article. Any development on the matter will be announced in due course.”

After announcing the plan to buy into Eagle High, FGV’s stock shed more than 11% when trading resumed, with many shareholders selling the stock.

Meanwhile, there could be a change in FGV’s penchant for buying assets after the departure of Datuk Mohd Emir Mavani Abdullah, who left in early April this year. His successor, Datuk Zakaria Arshad, has yet to make any official statement on Eagle High.

It is also understood that all other plans, such as the issuing of government-backed debt papers valued at about US$450 million that was being mulled over until mid-March this year, have been put on the back burner.

At the close of trading last Thursday, Eagle High had a market capitalisation of US$600.3 million, which would mean that the 37% FIC is buying has a market value of US$222.11 million.

Thus, while FIC has managed to obtain a 26% discount, the price tag still seems steep, with the Malaysian company paying a 227.36% premium over the market value for the block of shares.

Nevertheless, Eagle High has landbank of 425,000ha, with close to 70% of it in Kalimantan and the remainder in West Papua, Sulawesi and Sumatra. Some reports have it that the Indonesian plantation company’s entire landbank has a market value of US$1.84 billion, which would value the 37% stake at US$680 million, but this view is not held by the majority of analysts and market watchers.

There has been talk that some creditors of Eagle High were getting jittery over the company’s high debt levels and were even considering liquidation, which would result in its assets being sold off, but this could not be substantiated.

For the year ended December 2015, Eagle High suffered a net loss of US$13.4 million (RM54.43 million) on revenue of US$199.9 million (RM811.91 million).

According to Bloomberg, as at end-December last year, the company had long-term borrowings of US$452.7 million (RM1.84 billion) and short-term debt commitments of US$199.3 million (RM809.48 million). Meanwhile, cash and near cash items stood at US$90.3 million (RM366.76 million).

For the purchase of the stake in Eagle High, FIC is in talks with the Rajawali group, which holds 65.5% equity interest in the Indonesian company. The Rajawali group is the vehicle of Tan Sri Peter Sondakh, a well-connected Indonesian businessman.

Eagle High came about after PT BW Plantation Tbk bought Green Eagle Holdings Pte Ltd in September 2014 for US$861 million. BW Plantation acquired nine plantation companies with a total landbank of 129,000ha from the Rajawali group. The merged entity is Eagle High.

It is noteworthy that when the negotiations commenced in June last year, the US dollar was almost 3.75 to the ringgit. It then strengthened above 4.40, before settling to the current level of below 4.06.

As at end-2014, FIC only had assets — current and non-current — in excess of RM3.7 million, according to the Companies Commission of Malaysia. For the year ended December 2014, the company suffered an after-tax loss of RM46,683 from revenue of a mere RM142,556.

However, FIC has acquired blocks of shares in several companies, such as a 72.3% stake in Encorp Bhd in August 2014, 9.73% shareholding in Barakah Offshore Petroleum Bhd in November 2014 and 25.8% equity interest in Iris Corp Bhd in April 2015.

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