Story by Aidila Razak

aidila@kinibiz.com

 

As the dust settles on the controversial Felda Global Ventures listing, the winners and losers emerge.

WINNERS

Miti-approved investors

The largest portion of the shares was allocated to institutional investors, particularly the Ministry of International Trade and Industry approved bumiputera investors who were allocated 11.5 percent of total shares. The Miti-approved investors who cashed out at the share’s peak stood to pocket returns of RM1 per share.

Collectively, the investors could have made an astounding RM410 million. The fact that share prices have plunged since then suggests that many, if not all institutional investors had indeed made a killing from the initial rally.

Most of the shares, however, were for other institutional investors including overseas investors. The largest holder of FGV shares, outside of Felda, however is Lembaga Tabung Haji which holds about roughly 8 percent of shares.

EPF trails close behind at just under 8 percent. It has been seen actively trading its FGV shares since the lock in period expired late December. Bucking the trend by purchasing after the prices started to tumble in late July 2012, EPF has been criticised for garnering paper losses of at least RM75 million.

FGV

A commercial arm for Felda’s overseas ventures, FGV has turned profits from its plantation interests, but bled out to the tune of hundreds of millions through several of its overseas endeavours.

Much of its plantation profits were derived from subsidiary Felda Holdings, which in the first half of 2011, prior to listing had a turnover four times that of FGV.

This lent credence to initial speculation that it was Felda Holdings which would be listed, and not FGV. Instead, FGV piggy-backed on Felda Holdings into a lucrative listing.

Watershed agreements inked in the lead up to the listing beefed up the slender Felda entity, and made it a global CPO player almost overnight. From managing about 8,000 ha of Felda plantations, FGV now looks after 347, 584 ha of land, giving it direct access to an estimated 3.3 million tonnes of CPO. Its turnover prior to listing was RM4.2 billion but ECM Libra estimated that the agreement could close to triple its turnover by the end of 2013.

The listing resulted in proceeds to FGV of a cool RM4.4 billion. A relatively small portion, RM260 million, was used to pay off debts in its unprofitable North American venture.

BN federal government

Set up as a poverty alleviation programme, Felda oversees the welfare of some 112,000 households. This represents a significant vote bank for the BN government. Traditionally considered a stronghold for the BN, the opposition is increasingly gaining support through grassroots movements, like the PAS-linked Children of Felda Settlers Association (Anak).

This is where the RM5.5 billion of IPO proceeds by Felda may make a difference. The RM15,000 windfall cash may seem like pittance in comparison but goes far to prove the government’s claims that the listing benefits settlers. The RM3.8 billion left over can be used to the same effect. Felda does not open its accounts for public scrutiny.

Despite its lacklustre performance, the FGV listing is still touted as the second largest listing in the world and had put Malaysia on the investors map. Repeated often in the mainstream media, it is something that can generate a lot of pride for settlers.

Politics is both a game of sentiments and numbers. With Felda settlements reportedly having significant presence in areas for 54 parliamentary seats and 82 state seats, the feel good factor is precious political capital for a coalition facing what is likely its toughest battle yet.

LOSERS

Settlers

Interestingly, the settlers were allocated a miniscule 2.5 percent of total shares, amounting to 800 shares each. This translates to very little earnings—about RM800 –when the prices peaked.

An estimated 90 percent of settlers undertook soft loans with Felda to purchase these shares.
The settlers initially hoped would be given to them for free as reward for their years of contribution. They now pay Felda RM50 a month, and will have to do so for about six years.

The same amount could have bought them Koperasi Permodalan Felda shares which for the past decade have returned dividends in the teens. In 2012, KPF members enjoyed a remarkable 18 percent in dividends.

The resistance from some KPF members to the listing forced a new structure onto the listing. Announcing this, Felda chairperson Isa Samad said this meant that KPF members (of which 70 percent are settlers) will continue to earn dividends from the cooperative.

Additionally, he said, 20 percent of the FGV shares held by Felda will be held in trust for the settlers. Prime Minister Najib Abdul Razak whose department oversees Felda said that profits from 20 percent shareholdings will then be distributed among the settlers.

It is, however, uncertain if any such agreement has been drawn up between Felda and the settlers on the trust arrangement, in order to compel the agency to fulfill this promise. Settlers met by KiniBiz are none-the-wiser.

The settlers did get RM15,000 cash per household from the listing exercise, but at a total RM1.2 billion, this only makes up about a fifth of what Felda made from the listing.

KPF

The lease agreement involving the 347, 584 ha of land means that the land previously managed by Felda Plantations would be managed by Felda Global Ventures Plantation, a subsidiary of FGV. This involves fresh fruit bunches

KPF effectively owns 26 percent of Felda Plantations, via its subsidiary Felda Holdings, so a shift away from Felda Plantations would adversely impact KPF’s earnings.

Historically, fresh fruit bunches produced on this land was sold by Felda Plantation to Felda Palm Industries (F Palm). F Palm will in turn process the fruits into crude palm oil and sell it to third parties.

On March 2012, Felda Global Ventures Plantation inked a deal with F Palm, involving the sale of all of the fresh fruit bunches produced from the land. But instead of allowing F Palm to sell the CPO directly to third parties, the agreement compels F Palm to sell its CPO to a middleman—FGV.
Some argue that as FGV is buying from F Palm at Malaysian Palm Oil Board average prices, the agreement protects the latter from price volatility. But as a reseller, FGV would need to also buy at a price which secures its margins. The agreement deprives F Palm of direct access to the market.

KPF effectively owns 64.7 percent of F Palm via its subsidiary Felda Holdings Bhd. The impact of these changes on KPF dividends enjoyed by settlers and Felda staff will be apparent when the cooperative calls its 32nd annual general meeting.

Felda

The 347, 584 ha of land is leased for RM1,490 per hectare (or RM602 per acre) for 99 years —a song compared to market rates. Industry expert estimates that it costs between RM5000 to RM10,000 to lease an acre of plantation land for 99 years.

This works out to about eight times of what FGV is paying Felda. More conservatively, Boustead Plantations paid RM3,500 per ha for its REIT and this represents a discount of at least RM462.54 million per annum, for 99 years.

Its divestment of FGV also takes away potential profits from cash cow Felda Holdings Bhd, which is 49 percent owned by FGV.

But by divesting, it reaped RM5.5 billion. After running down its cash reserves from RM4.08 billion in 2004 to RM1.35 billion in 2009, the agency could use the cash to encourage settlers to embark on the pricey replanting programme. This is dire considering its aged hectarage.

http://www.kinibiz.com/story/issues/9020/winners-and-losers-of-the-fgv-listing.html