This article first appeared in The Edge Malaysia Weekly on April 12, 2021 - April 18, 2021

THE Federal Land Development Authority (FELDA) is determined to take FGV Holdings Bhd private as the corporate exercise will provide it with a sustainable income stream.

After the failed bid to take over FGV at RM1.30 per share, Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed tells The Edge that FELDA is “firm in its plan” to take over the plantation company and that the plan to revamp FGV is in progress.

“We see this as a huge milestone and achievement as FELDA managed to obtain majority control, that is, 81% of FGV shares, at the end of the [mandatory takeover] offer period. It is firm in its plan to privatise FGV,” he says in a reply to The Edge’s query on ­FELDA’s plans for the listed entity moving forward.

Mustapa discloses that FELDA does not intend to terminate the land lease agreement (LLA) with FGV, which controls a 51% stake in MSM Malaysia Holdings Bhd. “Considering ongoing efforts to privatise FGV, at the moment ­FELDA is not looking to terminate the LLA and take over the mills. It would not be prudent to compensate FGV for the LLA and mills since FELDA already has majority control of the company.”

According to him, FELDA has laid out a strategy and is now assessing the best approach to ensure the success of its recovery plan, which has been approved by the government.

“The takeover of FGV and its privatisation will guarantee a more sustainable business model and income stream for FELDA, which is currently discussing with FGV [its] plans to strategise FGV businesses and reorganise FGV’s group structure to optimise returns for FELDA, especially for the settlers,” says Mustapa.

At the close of its takeover offer on March 15, FELDA failed to garner 90% of the shares it did not already own in FGV to trigger a compulsory acquisition and delist the company from Bursa Malaysia.

Under Bursa’s listing rules, FELDA required acceptance from shareholders who collectively hold 1.626 billion FGV shares to proceed with the takeover. This would have translated into a 95% stake or about 3.46 billion shares in the plantation giant.

In a filing with the stock exchange, FGV said FELDA, together with the parties acting in concert, held 2.955 billion shares that represented an 80.99% stake in the plantation giant. FELDA also received 455,800 shares, or a 0.1% stake, from shareholders who accepted the takeover offer.

FELDA is expected to make a fresh offer six months or more after the previous bid as it is still keen on taking FGV private, as Mustapa says. Consequently, it is unlikely to address the minimum requirement of a public shareholding spread of 25%, which has dropped to 14.01% following the takeover offer.

It is worth noting that the Pahang government and Sabah government, via Sawit Kinabalu Sdn Bhd, remain substantial shareholders of FGV with 5% and 4% equity interest respectively.

Taking FGV private will enable FELDA to hold a direct controlling stake in MSM, the country’s biggest sugar refinery. Based on last Friday’s closing price of RM1.62, FGV’s 51% stake in MSM is valued at RM580.77 million.

FGV’s share price rose to a high of RM1.54 after the takeover offer expired. It closed at RM1.41 last Friday.

The takeover offer at RM1.30 per share values FGV at RM4.74 billion, a 71.4% discount to its 2012 initial public offering price of RM4.55 per share.

As crude palm oil (CPO) prices climb steadily to above RM3,500 per tonne, FELDA’s offer appears unattractive.

FGV announced several key management changes recently. Datuk Haris Fadzilah Hassan has resigned as CEO (effective May 15) to pursue other interests.

Meanwhile, the plantation group has appointed former director-general of FELDA Datuk Dzulkifli Abd Wahab as the group’s new chairman (effective April 1), replacing Datuk Wira Azhar Abdul Hamid, who resigned to pursue other interests.

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