This article first appeared in The Edge Malaysia Weekly on March 15, 2021 - March 21, 2021

FGV Holdings Bhd chairman Datuk Azhar Abdul Hamid and possibly three independent directors of the plantation company may be stepping down soon, sources familiar with the company tell The Edge.

It is understood that Azhar and some of the independent directors of FGV had verbally indicated their intention to resign but have not formally tendered their resignations. “It [their impending resignations] is not formal in the sense that they have not written to FGV yet. But their intention to step down has already been conveyed,” says one of the sources.

Azhar — a non-independent, non-executive chairman of FGV who was appointed by the government — could not be contacted to confirm or deny the news. He was appointed to the board in September 2017.

FGV’s independent directors are deputy chairman Datuk Yusli Mohamed Yusoff, Datuk Mohd Anwar Yahya, Datin Hoi Lai Ping, Mohamed Nazeeb P Alithambi and Nesadurai Kalanithi. The other board members are non-independent directors Datuk Amiruddin Abdul Satar, Datuk Shahrol Anuwar Sarman and Zunika Mohamed.

It is not clear whether any of the senior management at the plantation giant will also step down.

While the details are scarce, the resignations from the board of FGV are believed to be linked to the Federal Land Development Authority’s (FELDA) plan to delist the company from the local bourse. Azhar, as well as some of the directors and senior management, are understood to be of the opinion that it would be best to maintain FGV’s listing status to prevent mismanagement of the plantation company.

To recap, on Dec 8 last year, FELDA announced its plan for a mandatory takeover offer of FGV at RM1.30 per share. This came about after the acquisition of a 6.1% stake from Kumpulan Wang Persaraan (Diperbadankan) and a 7.78% stake from Urusharta Jamaah Sdn Bhd for RM658 million or RM1.30 a share. This nudged FELDA’s shareholding from 34.66% to above the 50% mark (together with the equity interest of its sister company Koperasi Permodalan Felda). As at last Thursday, the two parties acting in concert held more than 75% of FGV.

FELDA has sought an extension to its RM1.30 offer, which expires on Monday, March 15. Many market observers view the offer as low.

RHB Investment Bank, the independent adviser appointed by FGV, says FELDA’s offer of RM1.30 per share is not fair but reasonable, and recommends that FGV shareholders accept the offer. RHB estimates FGV’s value at between RM1.42 and RM1.60 based on a sum-of-parts valuation. The reasons for RHB’s recommendation are that there is no alternative proposal, FELDA and persons acting in concert with it have majority control and that FELDA does not intend to maintain FGV’s listing status.

In a circular to shareholders, FGV’s independent directors disagreed with RHB’s recommendation as the offer of RM1.30 is below the fair value calculated by RHB and that FGV’s management is currently undertaking a transformation exercise that should see improved earnings. Also, the offer price is way below FGV’s IPO price of RM4.55 and the offer does not take into consideration improvements made by the existing management, which should bear fruit in the near term. The independent directors also felt that FGV should remain a publicly traded company to ensure better transparency.

FGV’s shares were floated in 2012 at an issue price of RM4.55 a share. While FELDA gained close to RM6 billion from the offer for sale of shares, FGV also issued shares and raked in RM4.9 billion.

However, after several years of mismanagement, FGV’s cash hoard has been severely depleted and all it has to show for its previously large kitty are a few plantations acquired at high valuations. FGV, under Azhar’s watch, has sought legal recourse against some of its former directors on some of the acquisitions.

At its peak in 2012, FGV’s market capitalisation was just below RM17 billion. At the time, it was the world’s second largest flotation exercise by market value, only behind Facebook. Today, the shares are trading at about RM1.30 apiece, giving the company a market cap of only RM4.78 billion.

It is noteworthy that FGV’s financials have improved, thanks to the efforts of its CEO Datuk Haris Fadzilah Hassan, who has been at the helm of the company since January 2019.

At the time of its listing, FGV’s plantation profile was not good. Its prospectus for its IPO indicated that 36% of its plantations were between 21 and 25 years while 16.9% were more than 25 years. In other words, 52.9% of FGV’s plantations were considered old.

Today, however, old trees are about 30% of FGV’s profile. This has been brought about by a yearly replanting exercise of 15,000ha, which cost about RM300 million per annum.

For its 4QFY2020 ended Dec 31, FGV chalked up a net profit of RM134.93 million from RM4 billion in revenue. For the full year, it remained in the red with a net loss of RM246 million. According to Bloomberg, FGV is trading at a forward price-earnings ratio of 20.31 times.

It is also noteworthy that crude palm oil prices have been strengthening lately, having breached the RM4,000 per tonne mark for the first time since 2008, which should augur well for FGV’s earnings.

In the meantime, FGV’s 51% publicly traded sugar processing unit, MSM Malaysia Holdings Bhd’s share price has seen strong gains in recent months, which should further increase FGV’s valuations.

Less than three weeks ago, MSM shares were trading at about 55 sen each. Last Friday, the stock closed at RM1.89 to give the company a market capitalisation of RM1.33 billion.

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