THE idea of floating the Felda group's commercial unit, Felda Holdings Bhd, has been yo-yoing between a yes and a no since it was mooted by then Prime Minister Tun Dr Mahathir Mohamad in his Budget 2004 speech.
Eight years later, after several futile attempts and two rounds of top management changes at the Felda group, the proposed initial public offering (IPO) has never even left the drawing board. Now, it appears that the exercise is back on track, albeit with a different candidate Felda Global Ventures Holdings Sdn Bhd.
You might say that the idea has come full circle. Last week, Prime Minister Datuk Seri Najib Tun Razak in his Budget 2012 speech announced the plan to list Felda Global Ventures on Bursa Malaysia. He even stipulated a timeframe, saying the listing would happen by the middle of next year.
The aim, he said, was to raise funds for the company to be a global conglomerate. “The listing will create another blue-chip plantation company besides attracting international investors to Bursa Malaysia,” he added.
At the same time, Najib assured that the rights and interests of the over 112,000 Felda settlers would continue to be protected by the cooperative, Koperasi Permodalan Felda, which is set to be the single largest shareholder of Felda Global Ventures post-listing.
Najib's announcement on the Felda exercise came as no big surprise. In recent months, the market had been abuzz with rumours that Felda would soon return to the IPO route after the successful listing of its sugar producer, MSM Malaysia Holdings Bhd, in June this year.
Market observers are generally excited about the prospects of the stock exchange welcoming Felda Global Ventures, which is touted as potentially the world's largest listed plantation group.
With a sprawling plantation land bank of 880,000ha, the Felda Global group produces about 3 million tonnes of crude palm oil (CPO) annually, thus accounting for some 8% of the world's CPO output. The group comprises Felda Global Ventures and Felda Holdings, which are ultimately owned by the Government's Federal Land and Development Authority (Felda).
Many of the Felda Global group's businesses are parked under Felda Holdings (see table), which is 49%-owned by Felda Global Ventures. Koperasi Permodalan Felda holds the rest of the equity in Felda Holdings, while Minister of Finance Inc has one golden share.
Will the settlers be unsettled?
National Smallholders Association (NASH) president Datuk Aliasak Ambia tells StarBizWeek that the key to a smooth listing of Felda Global Ventures lies in how the management of the Felda Global group tackles sensitive issues such as the settlers' ownership of land, and whether they, via their “small” shares in Koperasi Permodalan Felda, will reap good returns from the listed Felda Global Ventures.
Of the group's 880,000ha of plantation land, about 500,000ha are owned by settlers and these holdings are managed by a subsidiary of Felda Holdings.
Says Aliasak: “As long as there are no changes to the Felda settlers' land ownership, and this land does not get floated along with the Felda-owned land, I believe the settlers will fully support the Felda Global Ventures IPO.” About 40% of the NASH membership consists of Felda settlers, he adds.
He believes that for the Felda settlers to enjoy sound profits via their stake in Koperasi Permodalan Felda, the Government must ensure that each settler owns at least 30,000 to 40,000 shares in the cooperative.
Currently, the average shares owned by settlers is RM6,000.
The annual contributions from the Felda Global group's profitable businesses have transform the Felda cooperative into a cash-rich outfit that can afford to pay a 14% dividend annually to its members for the past 31 years, sometimes as high as 16%.
The cooperative's members include Felda settlers and their families, as well as Felda employees.
A source close to Felda says the Felda Global group has undergone extensive internal reorganisation under previous group president and CEO Datuk Mohamed Bakke Salleh (who has moved on to head Sime Darby Bhd).
This has paved the way for his successor, Datuk Sabri Ahmad, to take the group to a higher level of dynamism under an ongoing transformation programme that will position the group as the world's largest diversified agro-business conglomerate in the foreseeable future.
Therefore, the listing of Felda Global Ventures need to be carefully crafted and managed so as to fit the interests of the various stakeholders, particularly the settlers (via Koperasi Permodalan Felda), Felda itself and the Government.
For now, the focus at the Felda Global group is on meeting the deadline set by the Prime Minister. “Perhaps, the IPO can be completed as early as the first quarter next year. I believe there is a game plan for unlocking the value of the massive settlers' land,” says the source.
“Furthermore, most of the settlers' land have a high percentage of old age' palm trees that desperately need replanting, given the low yield. But because of the still good CPO prices, now above RM2,500 per tonne, the Felda settlers are not keen on replanting.”
The proceeds from the Felda Global Ventures IPO may help address this issue; it is likely that the settlers will be given reasonably good monthly allowances as compensation when their land is being replanted.
The proposed IPO will be designed so as to address the investing community's needs, such as the preference for the presence of other prominent shareholders, which will boost liquidity in the trading of the newly-listed entity.
“Towards this end, Felda will likely offer Felda Global Ventures shares to strategic investors such as foreign partners with strong global presence; Malaysian institutional funds like EPF (Employees Provident Fund), KWAP (Kumpulan Wang Persaraan) and PNB (Permodalan Nasional Bhd); and the state governments where many of the Felda schemes are located,” says the source.
Yesterday, a local daily reported that Felda Global Ventures will hire investment banks as early as next week to arrange its IPO that may be one of the biggest in Malaysia.
The company is expected to hire two Malaysian investment banks and one or two other foreign merchant bankers via a closed tender exercise.
In an interview with StarBizWeek last May, Sabri said one of the Felda Global group's transformation programme targets was to double pre-tax profit by 2015. In 2010, Felda Global Ventures and Felda Holdings posted pre-tax profits of RM366mil and RM760mil respectively.
He added that a bigger portion (about 30%) of Felda Global's revenue would come from value-added products such as margarine, oleochemical derivatives and specialty fats rather than the current heavy dependency on upstream operations.
“Our growth strategies include to fully unlock the values in agri-businesses, which are related to palm oil and rubber, via expansion, particularly in Asean, through new investments, joint ventures and M&As,” he explained.
In addition, the group would be looking at exploring niche businesses such as producing micronutrients and renewable energy projects using palm biomass waste.
If these objectives were achieved as planned, Sabri said the group “will be well on our way to becoming a successful, globally integrated and diversified agri-business MNC (multinational corporation) by 2015”.
Making the Top 10
Observers foresee Felda Global Ventures joining the list of top 10 largest companies on Bursa Malaysia based on market capitalisation. In fact, Kenanga Research in its latest report says that if the listing materialises, Felda Global Ventures will command the biggest market cap in the FBM KLCI index. “We expect its market cap to be about RM71bil, based on Sime Darby Bhd's company value per ha of RM84,000, and assuming no debt on Felda Group.” Effectively, adds the research unit, the group will overtake Sime Darby as the world's largest listed oil palm plantation company.
In addition, the Felda Global Ventures IPO may command a better valuation should the CPO windfall tax be revised or abolished.
In terms of land size, market observers say the Felda Global group's closest rival is Sime Darby, with an estimated plantation land bank of almost 650,000ha in Malaysia and Indonesia (excluding its recent 63-year concession to develop 220,000ha in Liberia, West Africa, for palm oil and rubber plantations).
In a recent research report, Maybank Investment Bank (IB) says Budget 2012 has no major direct impact on listed plantation companies except for the proposed Felda Global Ventures listing, which adds to the appeal of local plantation stocks.
The Felda Global group also has presence in the United States, Canada, Australia, Pakistan, China, Sri Lanka, Thailand, South Africa and France. It has about 326 oil palm estates, 71 palm oil mills, 14 refineries (7 overseas via a joint-venture company), four kernel crushing plants, 13 rubber factories, manufacturing plants and several logistic and bulking installations nationwide and overseas.
Through its R&D subsidiary, the group is also the largest producer of planting materials, supplying between 25 to 30% of the local market.
Maybank IB estimates that Felda Holdings' profitability this year can reach RM1bil, given the stronger CPO prices compared with last year's prices. Felda Holdings is a one of Malaysia's largest diversified agro-based enterprises, with a turnover of RM14.9bil and a pre-tax profit of RM760mil in 2010.
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