Malaysia's Felda Global Ventures defends Indonesia deal

Acquisition of Eagle High Plantations includes a total land bank of 425,000ha with 67 per cent in Kalimantan and the rest spread across Papua, Sulawesi and Sumatra. (Photo: Reuters)
The Star | 15 June 2015

Malaysia's Felda Global Ventures defends Indonesia deal

by Hanim Adnan
Felda Global Ventures Holdings (FGV), which came under scrutiny for the proposed purchase of plantation assets from Peter Sondakh’s Rajawali Group in Indonesia, has defended the deal, saying that it was being transacted at one of the lowest valuations in three years.

FGV is buying a 37 per cent stake in PT Eagle High Plantations Tbk for US$680 million.

However, the entire company has a market capitalisation of $1.04 billion, indicating a hefty premium.

After the proposed transaction, FGV will be the single largest shareholder of Eagle High Plantations while Rajawali’s stake will be reduced from 68.6 per cent to 31.6 per cent.

But the Indonesian group, which emerged into Eagle High Plantations in a reverse takeover exercise proposed in September and completed early this year, will continue to manage the plantations.

FGV group president and CEO Mohd Emir Mavani Abdullah said the company was paying a lower enterprise value (EV) for Eagle High Plantations at $17,400 per planted ha, contrary to market talk that its purchase of Indonesia’s third largest listed oil palm planter was overpriced.

FGV pointed out that based on a comparative analysis, Sime Darby Bhd paid a higher EV per planted ha of $25,900 for New Britain Oil Palm Ltd in 2014, while IOI Corp Bhd forked out an EV of $23,500 per planted ha for Unico-Desa Plantations Bhd in 2013.

FGV’s past acquisitions of brownfield plantations - Pontian United Plantations Bhd was at an EV per planted ha of $23,200 in 2013, Asian Plantations Ltd at $23,000 in 2014 and the recent proposed Golden Land Bhd’s plantations at $20,400 respectively.

Emir told StarBiz that the cross-border deal would be financed primarily through debts.

“This will no doubt increase FGV’s gearing ratio, which is in line with many other growth focused companies.

“We expect our gearing ratio to increase (with the new debt) by 54 per cent to 1.10 from 0.72 currently,” he said, adding that more details will be shared once the definitive agreement is signed.

Emir said FGV’s current dividend policy will remain despite a potential increase in gearing.

The FGV-Rajawali partnership was unveiled last Friday.

Under the terms of the deal, FGV would pay $632 million in cash for a 30 per cent stake and offer 95 million new FGV shares for 7 per cent more stake in Eagle High Plantations, based on FGV’s last closing price of 1.86 ringgit on Thursday, equivalent to about US$47mil.

This will result in Rajawali Group owning about 2.6 per cent in FGV once the deal, which needs approval from shareholders among others, is concluded.

In addition, FGV will also acquire a 93.3 per cent to 95 per cent stake in Rajawali’s sugar project for $67 million cash.

The shares of Eagle High and Rajawali Group’s sugar project will be owned by FGV’s unit FGV Kalimantan.

The FGV-Rajawali partnership, however, is subject to a definitive agreement, due diligence, approval from shareholders and the respective regulatory authorities.

Emir also described the partnership as a strategic fit to transform FGV into one of the world’s largest fully integrated oil palm plantation companies – thanks to Eagle High’s current young crop profile with average mature age of eight years.

This will complement FGV’s older profile averaging 15.5 years.

“This will help increase our exposure to oil palm plantations which are non-Land Lease Agreements (LLA) landbank that will boost our fresh fruit bunches volumes,” he added.

Eagle High Plantations has a total land bank of 425,000ha with 67 per cent in Kalimantan and the rest spread across Papua, Sulawesi and Sumatra.

“FGV sees significant greenfield landbank expansion potential in Indonesia and plans to leverage on the credentials of Rajawali to build and penetrate into the downstream palm oil products in that market,” said Emir.

Other significant opportunities for FGV in Indonesia include the potential access to the big palm consumer goods and industrial fats market, sales of fertilisers, palm oil seedlings, biodiesel and trading business access to over 400,000 tonnes of CPO.

On the sugar business, Emir said Rajawali’s sugar plantations would complement its sugar unit, MSM Holdings Bhd, which is Malaysia’s largest sugar miller and refiner.

“This partnership will allow FGV to ride on Rajawali’s concession to operate sugar cane plantation and crushing mills in the republic,” he said, adding that demand for sugar is huge in Indonesia.

“Sugar plantation land is scarce in Malaysia but Rajawali has a gross land of 47,745ha in Papua province.

“Both parties can work closely in greenfield development, cultivation of sugar cane and well positioned to be a big sugar exporter to Asean,” added Emir.

Meanwhile, Rajawali Group managing director Darjoto Setyawan said there were no further plans for the group to divest its stake in Eagle High Plantations.

“Rajawali will continue to control and manage the day-to-day operation of Eagle High Plantations.

For now, there is no immediate intention to further divest our stake in Eagle High to FGV as we want to bring greater capability to both companies’ existing businesses.

“During current tough market conditions, cash is king. We want to strengthen our financial position in preparation for more new business opportunities.”

Hence, having FGV onboard will enable Rajawali to position Eagle High Plantations to be part of a fully integrated supply-chain in the integrated palm oil, largest upstream plantation business and also potentially become a world leader in palm-based oleochemicals business.

In terms of CPO production, Eagle High Plantations is targeting to push for 800,000 tonnes per year in the near future compared with 400,000 tonnes currently.

Rajawali emerged in Eagle High Plantations through a reverse takeover exercise in September last year that resulted in the former injecting plantations into the company that was then known as PT BW Plantations Tbk.

BW Plantations embarked on a rights issue raising 11 trillion rupiah (about $832 million) and the bulk of the money was used to buy Rajawali’s plantations.

BW Plantations shareholders assigned their portion of the rights issue to the Rajawali group which resulted in the latter controlling the company that saw a change of name in February this year to Eagle High Plantations.
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