FGV may raise Felda Holdings stake

  • Business
  • Friday, 04 Oct 2013

KUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV) is in talks to optimise and possibly raise its 49% stake in Felda Holdings Bhd (FHB), the world’s No. 1 crude palm oil (CPO) producer by volume, according to president and CEO Mohd Emir Mavani Abdullah.

“We hope to streamline operations between FGV and FHB. The shareholding structure may be reorganised. Some of the assets are better off with FGV,” he told StarBiz in an interview yesterday.

“Unlike the integrated players, we extract the palm oil and it goes to FHB for refining. Operationally, FGV and FHB are seamless – we manage them both. But accounting-wise, they are not.”

Analysts believe FGV could see significant gains from taking a controlling stake in downstream-focused FHB, which controls 6% of global CPO production and 18% domestically.

If it pans out, such a move would render FHB a subsidiary of FGV instead of an associate currently, allowing the plantation giant to consolidate FHB’s revenue and earnings.

“You can do the math. Our books would improve tremendously,” Emir said.

Koperasi Permodalan Felda owns a majority 51% interest in FHB, followed by FGV and the Ministry of Finance Inc with one golden share. 

At a briefing earlier, Emir told pressmen that FGV had yet to determine the value of Pontian United Plantations Bhd’s landbank in Kukup, Johor – which is close to the Tuas highway linking Johor and Singapore – but stressed that branching out into property development was not on the cards.

FGV completed its acquisition of unlisted Pontian on Tuesday for RM1.2bil, or RM139.20 per share.

Pontian’s Johor assets were singled out by several parties who opposed the deal on grounds that the land deserved a better valuation because of its potential as a property play in Iskandar Malaysia.

However, in view of the 100% take-up for FGV’s cash offer, they would appear to have acceded.

“Our business is not property development. If the land has that kind of value, we will probably sell it,” Emir said.

Meanwhile, FGV chairman Tan Sri Isa Samad defended the Pontian takeover, which analysts had called expensive given its limited contribution to the bottomline.

But taking into account the RM250mil cash that came with Pontian, Emir contended that its mostly mature, Sabah-based estates effectively cost RM65,000-RM67,000 per ha, contrary to the price tag of RM75,000 cited by analysts.

“We bought Pontian at what we believe is the fair value,” he said, adding that Sabah plantations typically command higher fresh fruit bunch yields than in the peninsula.

IOI Corp Bhd, by some estimates, paid RM80,000 per ha for Unico-Desa Plantations Bhd’s land in Lahad Datu and Kinabatangan, which is not far from where Pontian’s estates are sited.

According to FGV, Pontian would add some 4%, or 16,187ha, to its landbank, as well as a 90-tonne-per-hour mill and kernel crushing plant.

The proximity of Pontian’s estates to FGV’s own plantations in Sahabat also enhanced cost savings and economies of scale, the company said.

FGV has RM2.6bil left in its coffers following the Pontian exercise, which it will deploy to buy land for greenfield and brownfield rubber and palm oil plantations in Myanmar, Cambodia and even Africa.

The depreciation in the rupiah might also present merger and acquisition opportunities in Indonesia, Emir noted.

FGV is eyeing palm oil operations in West Africa due to the climate there, although demand is concentrated in the north and south of the continent.

“Consumption is higher in North Africa and South Africa, so we are reviewing proposals for midstream and bulking facilities there. 

"We are doing due diligence on Africa. Geography, political stability and socio-economic factors such as labour have to be considered.

“We need to look at all these things before we even put one tree in the ground, because once that happens, we’re there for 40 years,” Emir said.

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