Felda Global Venture Holdings Bhd (FGVH) has been the undisputed worst plantation stock performer ever since its initial public offering (IPO) in July 2012. The share price decline was so bad that the company was removed from the Bursa Malaysia KLSE Index stocks last year.
Since its hyped-up listing at RM4.45 per share, the battered government-linked stock closed at RM1.51 yesterday representing a whopping 66% decline in share prices. Despite its acquisition spree since then, FGVH net profits have tanked from RM1.33 billion in the financial year ending 31 December 2011 to a pitiful RM117 million in 2015.
Among its major acquisitions included Pontian United Plantations Bhd at RM1.2 billion in October 2013, Asian Plantations Ltd at RM568 million in October 2014 and Felda Iffco South China Ltd at approximately RM181 million. The undisputed turkey of the year however will go to FGVH’s proposed US$680 million 37% acquisition of Eagle High Plantations (EHP) at the outrageous price of Rp775 per share in June 2015 whose stock price closed at Rp270 yesterday. That means FGVH will pay nearly 3 times the market price of EHP, an absurd acquisition by any measure!
The EHP deal has yet to be completed but FGVH is in a limbo because the company paid a exorbitant 25% non-refundable deposit of US$174.5 million for the shares of EHP already!
The spate of acquisitions by FGVH should by right be earnings accretive, meaning they will add profits to the group. However, despite having used up all of its cash raised during the initial public offering in 2012, the more acquisitions it conducts, the less profits it makes.
In another stunning announcement last week, before the dust over EHP has settled, FGVH is now proposing to acquire 55% of Zhong Ling Nutri-Oil Holdings Ltd for RM976 million. Zhong Ling is a company registered in Cayman Islands with interests in the Chinese market refining and distributing peanut and other edible vegetable oils.
There are many questions arising from this particular transaction including the reason for FGVH to acquire a peanut oil company and variances arising from a complicated profit guarantee by Zhong Ling’s vendors.
However, the biggest question which FGVH must answer to its shareholders, which include not only state-owned funds like EPF and Tabung Haji, but also more than 90,000 Felda settlers is, why is FGVH acquiring a company which has failed to complete its audited accounts since December 2013!
The failure to complete and table Zhong Ling’s financial audit for December 2014 or 2015 in a timely manner by a reputable international auditor is the clearest warning sign that all is not well within Zhong Ling. It gives the signal that Zhong Ling’s shareholders are seeking a profitable exit by disposing of the troubled assets to a company desperate to boost its earnings.
If Zhong Ling is indeed financially sound, why shouldn’t FGVH just request for the company to complete its missing audit first before negotiating the acquisition. Why must FGVH rush in headlong into the acquisition, bear the risk of an unaudited company backed by a highly questionable guarantee arrangement by Zhong Ling’s main shareholder?
We call upon the Board of Directors of FGVH to protect the interest of the company’s shareholders by immediately terminating the acquisition. The deal should only ever be considered after Zhong Ling has regularized its audit short-comings, and even so, only if the latter allows a separate independent audit be carried out to verify the financial statements.