This article first appeared in The Edge Malaysia Weekly on September 23, 2019 - September 29, 2019

TAN Sri Syed Mokhtar Albukhary is said to be hatching up a plan to buy a 20% stake in FGV Holdings Bhd, which could see him eventually take control of the company, sources familiar with the matter tell The Edge.

It is understood that the businessman’s generals have been scouting around — meeting with financial institutions — for funding of more than RM1 billion to facilitate the acquisition.

“He (Syed Mokhtar) is offering land in Nusajaya (Johor) valued at more than RM1.5 billion as well as shares in FGV, which will be pledged after the acquisition is concluded,” a person with knowledge of the matter tells The Edge.

Thus far, all the information gathered indicates that the businessman is looking to create a special-purpose vehicle (SPV) under his privately held unit, Restu Jernih Sdn Bhd, to carry out the transaction.

The Edge understands that the plan includes the businessman acquiring a block of FGV shares from the Federal Land Development Authority (FELDA) and buying out Koperasi Permodalan FELDA Malaysia Bhd (KPF). FELDA has a 33.66% stake in the plantation company while KPF has 5.25%.

It is hard to fathom why FELDA would sell its stake in FGV now as the latter was listed in mid-2012 at RM4.45 per share and at its peak shortly after, the company boasted a market capitalisation of more than RM17 billion.

The stock closed at 89.5 sen last Friday, giving the company a market capitalisation of RM3.26 billion.

Needless to say, all eyes will be on FELDA chairman Tan Sri Mohd Bakke Salleh, who was previously with Sime Darby Plantation Bhd and succeeded Tan Sri Megat Zaharuddin Megat Mohd Nor at the agency in July this year.

As for KPF, it is clear that it has been trading its FGV shares for it owned 5.61% in the company as at September 2017 but only 5.18% a year ago. It is also difficult to gauge how much KPF paid for its shares in FGV as news reports have the acquisition price in May 2014 at RM825.3 million, which translates into RM3.96 per share. However, KPF’s 2018 annual report has its holding cost for the 191.27 million shares or 5.24% stake it now owns in FGV at RM1.69 apiece.

In the meantime, senior personnel at KPF indicate that Syed Mokhtar has yet to make a move to buy FGV shares from the cooperative. “I don’t think we (KPF) are selling …  in fact, I have heard the opposite, that we may increase our stake,” a high-ranking official says.

Other substantial shareholders of FGV that Syed Mokhtar may entice to sell include government entities Urusharta Jamaah Sdn Bhd — an SPV set up by the Ministry of Finance that owns 7.78% in FGV — and Kumpulan Wang Persaraan (Diperbadankan) (5.6%), and the Pahang government (5%).

Urusharta Jamaah was formed to help resuscitate pilgrim fund Lembaga Tabung Haji, which was crumbling after having made many bad investments, including in FGV.

FGV’s current management has been trying to steer the company out of the rut it has been in for the past few years. But the going has been tough.

In its six months ended June 30, FGV suffered a net loss of RM55.57 million on revenue of RM6.55 billion. In the corresponding period a year ago, the net loss was RM23.3 million on revenue of RM7.04 billion.

As at end-June, FGV had deposits, cash and bank balances of RM1.2 billion, short-term borrowings of RM3.35 billion and long-term debt commitments of RM827.48 million.

It is noteworthy that Syed Mokhtar’s Restu Jernih wholly owns Perspective Lane Sdn Bhd, which, in turn, wholly owns the Tradewinds group of companies, including Tradewinds Plantation Bhd and Central Sugars Refinery Sdn Bhd, both of which are in businesses that FGV is involved in.

FGV controls a land bank of 439,725ha in Malaysia and Indonesia, and is one of the world’s largest crude palm oil (CPO) producers — around three million tonnes a year — and has a 51% stake in sugar refinery MSM Malaysia Holdings Bhd.

Tradewinds Plantation, meanwhile, is reported to own 150,000ha of plantation land, which would give the merged entity some 590,000ha, thus matching Sime Darby Plantation’s 598,554ha, which are planted with oil palm.

It is also likely that Syed Mokhtar may inject the Tradewinds group’s assets into FGV and MSM and unlock value in these entities. However, the question that needs to be asked is, how efficiently is Tradewinds Plantation run?

In its year ended Dec 31, 2017, Tradewinds Plantation raked in an after tax profit of RM229.51 million on revenue of RM3.04 billion.

Restu Jernih, the holding company for the Tradewinds group, registered an after-tax profit of RM191.12 million on revenue of RM9.24 billion and retained earnings of RM756.21 million as at Dec 31, 2017.

In the same period, Restu Jernih had total assets amounting to RM14.42 billion and total liabilities of RM13.27 billion. However, it has to be noted that there are many assets under Restu Jernih, including Padiberas Nasional Bhd or Bernas, which holds the lion’s share of rice distribution in the country.

While Syed Mokhtar may be keen to wrest control of FGV, he is likely to face a lot of resistance from FELDA and FGV even. There will also be questions about his domination of the sugar-refining business if the deal does see the light of day.

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