FGV defends Indonesia deal again

KUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV), which is due to call for an EGM to approve its plans for a much criticized 37% stake in PT Eagle High Plantations Tbk (EHP), yesterday came out with a three paged statement presenting its case for the proposed purchase.
The statement comes weeks after substantial shareholder Employees Provident Fund (EPF), with a 5.09% stake, expressed its displeasure with the 70% premium, over its market price, FGV is paying for EHP.
In the statement FGV said it will no longer be looking at anymore acquisitions, and plans to consolidate its investments and drive growth. It also said that it is not looking for controlling stake in EHP.
FGV which needs shareholders approval to purchase the 37% stake for US$680 million (RM2.5 billion), stressed that it is crucial to dispel the perception that Indonesian transactions should be priced lower than Malaysian transactions due to nature of the land tenure (leasehold vs freehold).
It said a key element to examine in its valuation is based on the economic value of the land; Indonesian plantations have higher yield than Malaysian plantations because the soil in Indonesia have gone through less planting cycle than Malaysia.
"Compared to Kalimantan or Sulewasi, where there has been two to three cycles and Papua New Guinea with only one cycle, Malaysia has had six cycles per 160 years. This is an important element that cannot be omitted when evaluating the land - its economic value," FGV said in a statement yesterday.
It also clarified purchasing the 37% from the open market is not possible, as the free float is limited to 30%.
FGV also said that comparing the quantum of loss for its share price with other plantation companies is misinformed, as they have diversified revenue streams that are not highly dependent on global CPO prices. Plantations contributes 70% to FGV's revenue.
It pointed out therefore that it is critical for the deliberate acceleration of its strategic transformation plan to move towards re-balancing its revenue streams to 60% from plantations and 40% downstream business – from which there will also be a higher margin contribution.