KUALA LUMPUR: Indonesia’s Rajawali Corp would want to raise its shareholding in Felda Global Ventures Holdings Bhd (FGV) to 21% should the latter decide to seek a controlling stake in PT Eagle High Plantations Tbk, in which Rajawali is currently a major shareholder holding a 65.54% stake.

Rajawali managing director Darjoto Setyawan was quoted by Reuters as saying that the Indonesian plantation group may consider increasing its stake in FGV to 21% from 2.55% under the proposed offer, if it has to cede control of Eagle High to FGV.

Darjoto had told Reuters that the deal could be in the form of a share swap, and Reuters had reported that a 21% stake in FGV would be worth US$360 million (RM1.35 billion) based on current market prices.

To recap, FGV is proposing to buy a 37% stake in Eagle High from Rajawali for about US$680 million, of which US$632 million would be paid in cash for the 30% stake, while the remaining 7% stake would be settled through an issue of 95 million new FGV shares, which would see Rajawali holding a 2.55% stake.

Some quarters see that a share swap deal may not augur well for FGV given that its share price is in a trough now. In a matter of one year, FGV has slumped by 59%, from RM4.18 a year ago to RM1.72 at the market close yesterday. Indeed, FGV’s share price slid to a record low of RM1.65 last Monday as investors and analysts see the acquisition as too pricey for FGV to swallow.

The Employees Provident Fund has expressed its unhappiness at FGV’s proposed purchase of a stake in Eagle High. The provident fund has urged FGV to explain the hefty premium it is going to pay for a non-controlling stake in Eagle High.

Licensed investment adviser Asia Analytica Sdn Bhd pointed out that if a share swap scenario were to take place, the main question would be at what price the FGV shares would be issued.

“FGV’s share price is currently at its low level, if a share swap were to happen, the crucial question to ask is whether FGV shares will be at a premium to current market prices … only if it is at premium to FGV’s current market price will it be a better deal for the FGV camp,” the research firm told The Edge Financial Daily.

For its first quarter ended March of financial year 2015 (1QFY15), the group saw its net profit plummet 97.5% to only RM3.58 million from RM143.63 million in 1QFY14, which FGV, the largest palm oil producer in the world, blamed on the flash floods that affected half of its plantations and weak crude palm oil prices.

Looking at its shaky financials, Asia Analytica said that the next question would be whether FGV has the capacity to take on the long-term commitment to realise the potential of Eagle High, as the latter company is highly leveraged.

Based on its balance sheet as at Dec 31, 2014, Eagle High had total borrowings amounting to 7.3 trillion rupiah (RM2.04 billion), and a cash balance of barely 178.6 billion rupiah.

“Considering the debt levels of Eagle High, FGV would need to take on a long-term commitment, and would probably need to inject some fresh capital in order to fully realise the potential the company has to offer,” said Asia Analytica.

“FGV will need to take all these issues into consideration for its proposed venture, so the bigger picture here is not so much Rajawali taking on a bigger slice of FGV, but what is FGV going to do with Eagle High,” said Asia Analytica.

This article first appeared in The Edge Financial Daily, on June 26, 2015.