Eagle High acquisition could mean another round of selloff for Felda
Kuala Lumpur
VIEWS may be mixed on how much support Malaysia's stock market can derive from a proposed RM20 billion (S$6.45 billion) fund to buy undervalued shares, but the plan has already proved to be a boon for Felda Global Ventures Bhd.
Shares of the state-owned planter are still a fourth higher to RM1.50, albeit having slipped from the whopping 29 per cent one-day gain on Sept 14 when Putrajaya announced pro-active measures to boost the economy.
While it is unclear if ValueCap's shareholders - Khazanah Nasional Bhd, Permodalan Nasional Bhd and Kumpulan Wang Persaraan (the Civil Servants' Pension Fund) - have already deposited their portion of the funds into ValueCap, Felda's shares are not undervalued according to three research houses that peg its fair value at between RM1.20-RM1.30.
AffinHwang Capital has also warned of "acquisition considerations" for Felda's proposed purchase of Indonesia's Rajawali plantation assets given the resurgent US dollar.
In a Sept 22 report, it pointed out that the implied premium over the market price for Felda's acquisition of Rajawali's PT Eagle High for US$698 million in a cash and new Felda shares deal had increased from 72 per cent to 223 per cent or a threefold rise following the sharp declines in the ringgit and rupiah.
Given the dollar's continued climb in the past week against both currencies, particularly the ringgit, the premium has grown even bigger, as has the potential earnings-per-share dilution.
The deal also does not give Felda management control of PT Eagle High even though the proposed investment amounts to almost 48 per cent of shareholders' equity and is set to significantly increase its gearing, AffinHwang said.
Since the middle of last last year, Felda's weaker-than-average earnings - only partly the result of depressed crude palm oil prices - had prompted a steady decline in its share price.
The selloff accelerated in mid-June after it proposed to buy PT Eagle High.
As the transaction appears on track for completion - notwithstanding the tumbling ringgit and the government's direction to state-linked entities to defer investing overseas so as not to exacerbate the currency's fall - another round of selloff could be looming.
Analysts say as Felda's planter-settlers form a crucial vote bank for the ruling coalition Barisan Nasional, investors anticipate it will receive support from ValueCap.
Still, Felda shares are now only worth a third of its 2012 initial public offering price of RM4.55 a share.
