Listing of MSM Holdings long overdue

AFTER weeks of speculations, Prime Minister Datuk Seri Najib Tun Razak has confirmed last Tuesday that Felda Group would list its sugar unit - MSM Holdings Bhd on the Main Board in July.

This was quickly followed by a draft prospectus posted on the Securities Commission website providing investors with insights into the company's initial public offering (IPO).

For Felda Group, the listing exercise has been long overdue since the idea was mooted by former Prime Minister Tun Mahathir Mohammad in 2007.

It is believed that earlier attempts to list Felda Holdings Bhd and Felda Global Ventures Holdings Sdn Bhd hit a snag following landowners issues, socio-political obligations as well as the settlers' unrest over allegations of dubious operations by Felda's top management which almost broguht the conglomerate to the brink of bankruptcy.

(Felda Global is wholly-owned by statutory body Federal Land and Development Authority (Felda) while Felda Holdings' equity is owned in a ratio of 51%:49%:1 golden share by Koperasi Permodalan Felda Bhd, Felda Global and Ministry of Finance Inc respectively)

The MSM Holdings' IPO - the first under Felda Group stable - is poised to generate a lot of excitement and will be closely scrutinised by the investing community.

Many analysts had even pegged the proposed IPO to generate over RM1bil - the biggest IPO so far this year.

In a nutshell, MSM Holdings is the leading sugar refining group in Malaysia with an installed production of 1.1 million tonnes from its units - Malayan Sugar Manufacturing Company Bhd (MSM) and Kilang Gula Felda Perlis Sdn Bhd (KGFP).

MSM Holdings ultimately gained control of about 57% in the local sugar market when Felda Global, in 2009, made a RM1.5bil deal to buy over PPB Group's entire sugar assets namely MSM, a sugarcane farm in Perlis, 50% stake in KGFP and PPB Group's 20% share in Tradewinds (M) Bhd.

PPB Group's owner tycoon Robert Kuok, who is nicknamed the Sugar King, has exited the sugar business in Malaysia but he is believed to have set his sights on the regional sugar operations via Singapore-based Wilmar International.

While the listing of MSM Holdings may seem to be more straight-forward compared with Felda Holdings or Felda Global, the investing community wants to see to more value creations for the soon-to-be listed company.

Some quarters feared that MSM Holdings, despite being well supported by a big conglomerate like Felda Group, could turn out to be an illiquid stock given the restricted nature of the sugar business in Malaysia.

The performance of MSM Holdings would depend largely on the Government's regulated policies such as the level of price ceilings and subsidies for sugar.

However, under the 10th Malaysia Plan, the Government decided to gradually rationalise subsidies and price controls for sugar.

This saw the retail price of coarse and refined white sugar in 2010 increased three times to reflect the global market prices.

At RM2.10 per kg, the price of coarse sugar in Malaysia is still the lowest in Asean, with the closest being Thailand at RM2.36 per kg.

In Malaysia, MSM Holdings via KGFP has the only sugar cane plantation and sugar cane milling facility in Chuping. KGFP produces sugar cane on a 4,454ha plantation that it owns, as well as on 1,244 ha of adjacent leased land.

However, the company still needs to purchase about 49% of its imported raw sugar supply under long term supply contracts as well as 51% imported raw sugar in international market at prevailing market prices for its refining business.

Therefore, to reaffirm investors' confidence on MSM Holdings, the company in its draft prospectus cited intention to pursue strategic acquisitions and investments particularly in the South-East Asian region. MSM Holdings has the financial strength and strong balance sheet to consider attractive investment opportunities that may become available in the future.

In 2010, MSM Holdings generated net profit of RM232.9mil on revenue of RM2.2bil. Its net assets stood at RM1bil with total borrowings at RM464.9mil.

Many also viewed the company's move as emulating Wilmar which is actively building its sugar business regionally particularly in Indonesia.

Last year, Wilmar bought over Sucrogen, a unit of Sydney-based CSR, the world's fifth largest sugar refiner for US$1.5bil thus giving Wilmar control over half of Australia's raw sugar output.

Apart from main-board bound MSM Holdings, it is believed that Felda Group was also planning to list other profitable units under its stable within the next one to two years.

Should these proposed listings materialised, all under Felda Group will benefit including the 112,635 settlers which have been the backbone of the Felda organisation for over 50 years.

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