Thursday, June 18, 2015

Felda's Rationale Behind EHP Acquisition Demands a Deeper Ponder

We fully support the position of the Employee Provident Fund (EPF) to oppose Felda Global Venture’s (FGV) acquisition of 37% of Eagle High Plantations for US$680 million and call on all other public funds to do the same

Employees Provident Fund (EPF) CEO, Shahril Ridza confirmed yesterday that the EPF’s representative questioned the rationale behind the US$680 million, or RM2.55 billion, acquisition of EHP, particularly the generous premium reportedly accorded to the deal, at FGV’s annual general meeting (AGM) on Tuesday.

We fully support the position EPF questioning the unbelievably expensive acquisition of Eagle High Plantations, which was traded at 72% above its last traded price and 267% above CIMB Research’s fair valuation of the company. There was not a single investment research house which did not have a negative report on the proposed acquisition.

CIMB also warned that the group “may have to write down the value of EHP post acquisition to reflect current market price, post this acquisition. The write down could amount to RM1.07 billion”. The amount is massive relative to FGVH’s net profits of only RM306.4 million for its financial year ending December 2014, a 69% drop from RM982.2 million in the previous year.

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.

As of yesterday, the market was unanimous in giving FGVH a big thumbs down for the proposal. The share price, already at a record low of RM1.86 before the announcement of the deal, tanked a further 9.7% to RM1.68. This price represents a 63% drop since its IPO.

We call upon all other institutional funds which invests on behalf of Malaysian tax-payers to openly oppose the deal to ensure that FGV performance does not get any worse than it already is.

Besides the EPF which owns a 5% stake in FGV, other major shareholders include Lembaga Tabung Haji, Retirement Fund Incorporated (KWAP) and the Pahang government, which hold 7.8%, 5.6% and 5%, respectively.

The other Government entities which must raise their objections to the deal are Lembaga Kemajuan Tanah Persekutuan (Felda), Felda Assets Holding Company and Koperasi Permodalan Felda Malaysia owning 20%, 13.66% and 5.75% respectively.

If the above funds were to combine their shareholding strength of 62.8%, the acquisition exercise will be stillborn and further losses to FGV can be consequently averted.

The above funds and institutions must publicly pledge their opposition to the exercise because the entire deal stinks to high heavens with the insidious objective of allowing PT Rajawali Capita, the seller of EHP shares to profit astronomically.

The Rajawali group which is controlled by Indonesian tycoon, Tan Sri Peter Sondakh had only acquired their stake in EHP at an average price of Rp400 in December 2014. Less than six months later, FGV decides to the said 37% stake at Rp775, giving Peter Sondakh an eye-popping profit of US$328 million (RM1.23 billion). Why is a Malaysian government-linked company helping to further enrich an Indonesian tycoon, who just happens to be the Prime Minister’s friend?

The Prime Minister Dato’ Seri Najib Razak and his Cabinet Ministers must put a stop to the above exercise to prevent Felda settlers from losing even more money in the investment turkey.

Tony Pua

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