PETALING JAYA: It will be cheaper for the Federal Land Development Authority (Felda) to take FGV Holdings Bhd private at its current market capitalisation, rather than opt for a costly early termination of the land lease agreement (LLA) between the agency and the listed planter.
In its latest report, CGS-CIMB Research said the cost for Felda to take over the remaining stake it does not own in FGV is about RM2.6bil, based on FGV’s last market cap.
Felda currently has a 33.66% stake in FGV.
The LLA involves 350,733ha of Felda’s land being leased out to FGV for 99 years, which had paved the way for FGV to be listed on Bursa Malaysia back in 2012.
“Based on our sum-of-parts valuation, we assume the estates under the LLA to be worth RM2.55bil, ” said CGS-CIMB.
FGV in a statement last week pegged its LLA compensation amount between RM3.5bil and RM4.3bil based on its internal assessment of its financial performance in 2020 and 2021, and other factors.
“We view that the amount FGV expects is optimistic, given the historical trends of LLA payments and our current understanding of the compensation formula, ” said CGS-CIMB.
Felda’s special task force chairman Tan Sri Wahid Omar, at a press briefing last Friday, had also indicated that the compensation amount for an early LLA termination would be “less than what was mentioned by FGV” based on Felda’s assessment.
On the flip side, CGS-CIMB also believed that Felda would unlikely pursue a termination if “the compensation is as high as RM3.5bil to RM4bil, given that it may be cheaper to take FGV private at current market capitalisation.”
“Our view is that the key decision on whether the potential LLA termination is positive or negative for FGV hinges on the compensation sum to be agreed upon.
“Our read is that the compensation sum would be highly dependent on the financial year used for its calculation, ” added CGS-CIMB.
It pointed out that if it is based on FGV’s 2019 financials, the compensation will likely be low or minimal, whereas if it is based on 2020 or 2021 financials, it will likely be higher. However, the final amount will be dependent on the performance of FGV’s estates and crude palm oil (CPO) prices.
CGS-CIMB, which has a “neutral” call on FGV, said in the medium- to long-term, it sees the LLA termination as a negative.
“This means FGV will not be able to enjoy the fruits of its replanting exercise over the past years, ” it added.
Yesterday, FGV’s share price ended three sen down at RM1.03, giving the stock a market cap of RM3.76bil.
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