Sunday, 14 June 2015

Is FGV overpaying for Eagle High or did FGV saw a great opportunity and took it?

Blogger A Kadir Jasin has accused that Felda Global Ventures Holdings Bhd (FGV) overpaid for Indonesian listed company Eagle High Plantations and is an attempt to bail out Indonesia's 9th richest person, Peter Sondakh.

His main argument is that the effective price that FGV is paying is about 800 rupiah per share when the market price is currently 450 rupiah per share.

To recap, FGV is acquiring a 37% stake in PT Eagle High Plantations Tbk — the third largest plantation group listed in Jakarta — for US$631.5 million (RM2.37 billion) cash and 95.44 million new FGV shares, representing 2.55% of the enlarged and issued share capital of the group.

He said logically that FGV should ask for a discount on the share price instead of paying a premium to acquire the 37% block of shares.

A Kadir also wrote,
Lojiknya FGV membeli saham-saham EHP dengan harga diskaun kerana sektor perladangankini dalam suasana lembap. Lagipun, bukan semua tanah milik EHP sudah mengeluarkan hasil. Daripada pegangan seluas 419,006 hektar, baru 147,298 hektar ditanam. Bakinya masih hutan belantara.
To be honest, I have never heard of anyone ever in the entire world asking for a discount on the market price of shares to acquire a major block in a public listed company. Every single acquisition where control changes hand has always been at a premium.

WOI Pak Kadir!! This is PASAR SAHAM and not PASAR MALAM,!

What is A Kadir Jasin smoking? Does he have any real experience in the business world at all? What a ridiculous thing to say to ask for discount on quoted shares in order to acquire a major controlling block.

Even the publication that A Kadir and his fellow anti-Najib bloggers  have been quoting from, The Edge had written in their latest article two days ago that the price is a good price and not unreasonable at all. "Good asset value it said".

The Edge June 13 issue

In fact, The Edge says the acquisition price is not unreasonable to take control of a young and fast growing major plantation company where the trees are still young and will soon reach maturity and in their words "could be a STAGGERING contributor to future revenues".

In terms of the price paid per PLANTED hectare, the price FGV's paid is the lowest in years.
lowest price in years
What FGV is paying for Eagle High is much lower than what Sime Darby or IOI paid for their recent acquisitions  And plus, remember that Eagle High;s plantations are young trees and has yet to reach their full potential.

Here is the excerpt from The Edge article above.
The only problem that The Edge highlighted is that the low worldwide palm oil price now and Eagle Plantations' high debt levels weighing down on profits.

Figures from the Wall Street Journal shows that Eaghle High's revenue and Earnings Before Depreciation Interest, Tax and Amortization (EBDITA) is staggeringly high at 106% growth and 201% respectively year on year. However, Net income (profits) dropped.

This proves that the Eagle High's assets have huge potential but is weighed down by debts and low prices. Debt can easily be restructured and debt costs lowered using FGV's much stronger credit profile while palm oil prices will eventually recover. Palm Oil prices always recovers as it is a commodity and commodity prices always moves in cycles. Always.

In fact, the alleged 800 rupiah share price that A Kadir says that FGV is paying to acquire the major controlling stake doesn't even look high if you take a 12 months view.

Eagle High has traditionally traded above 1200 rupiah per share until recently.

As you can see from the 12 months share price graph of Eagle High plantations, it is clear that Eagle High share price have traditionally been trading above 1,000 Rupiah per share and was as high as 1,270 Rupiah as late as July last year but has since come into some weaknesses since the final quarter of 2014.

Therefore in the historical perspective, at 800 Rupiah per share and at one of the cheapest asset acquisition price per planted hectare, FGV is not overpaying for Eagle High.

On the contrary, FGV is taking advantage of depressed share prices recently and a weakened Eagle High due to its debts.

FGV saw an opportunity amidst weaknesses to move towards its goal of becoming the world's largest palm oil plantation company by taking a major stake in Indonesia's 3rd largest plantation company with "staggering" revenue potential at low historic prices.

As more Eagle High palm trees continue to reach maturity and as palm oil prices recover (they always do), FGV's well-timed acquisition will be hailed as excellent timing and visionary.

I believe A Kadir Jasin is politically-motivated and just trying to use FGV in a cheap shot at PM Najib in making all these baseless accusations on FGV.

He exposed his ulterior motive when he started his article with Peter Songdakh is PM Najib's friend and by ending his article with:
Mungkin Sondakh Jelma Dalam 1MDB?
Apakah ada kemungkinan Rajawali atau Sondakh sendiri akan menjadi pembeli seterusnya? Sondakh suka kepada urus niaga berkembar.
Firstly, when 1MDB bought all those IPPs from Ananda Krishnan did A Kadir say that this was to help bail out Tun Mahathir's friend Ananda Krishnan? I guess he didn't.

Secondly, There is zero evidence at the moment that Peter Sondakh or his Rajawali group is even talking to 1MDB or has indicated any interest whatsoever but it has not stopped A Kadir from speculating.

But even if Peter Sondakh or Rajawali does indicate interest, so what? What is wrong with urusniaga berkembar where both sides win instead of one side always winning? That is a respectable and sustainable mutually beneficial business relationship, isn't it?

As part of their restructuring, 1MDB is using an open tender approach to seek investors for their various businesses, Thus even if Peter Sondakh likes to do urusniaga berkembar, he will have to do so at market prices and beat out the rest of the long list of bidders who have already indicated interest in the press.

A Kadir Jasin should just concentrate his articles on political matters and not touch on something as complex as mergers and acquisitions valuation.  His lack of understanding and expertise in this area undermines his credibility.

This is not the first time.that A Kadir's lack of knowledge in business matters have embarrassed him.

In an earlier attempt a few months back to slam 1MDB, A Kadir Jasin very embarrassingly asked:
7. Why the necessity for 1MDB to do a land-lease development for TRX with an Australian company 

To which I answered then with the utmost respect which I reserve to my elders:

Dear En Kadir, it was not a "land-lease development ". TRX is not leasing land to an Australian company for development. 
The company's NAME is Lend Lease Group (officially Lend Lease Corporation Limited) founded in 1973 and listed in Australia and is very famous worldwide. I am surprised you have never heard of this company but yet still want to involve yourself with Real estate and property development matters. 

As for overall FGV business strategy and its IPO in 2012, I believe FGV timed the market perfectly by listing and raising funds when the palm oil price cycle was at its highest - which allowed them to raise money cheaply to solve a few major legacy problems in Felda and FGV.

The settlers benefited and will benefit immensely from this timing but at the expense of the deep-pocketed institutional investors (at least in the short-term).  But this is a story that I will write on another time.

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