Felda eyes US$262m asset sale

[KUALA LUMPR] Felda Global Ventures Holdings Bhd plans to raise more than 1 billion ringgit (US$260 million) selling non- core assets as the world's biggest crude palm oil producer focuses on plantations to repair investor confidence dented by an acquisition.

Unprofitable crushing and refining businesses in the US and Canada that have drawn initial bids ranging from US$180 million to US$250 million may be sold later this month, Chief Executive Officer Mohd Emir Mavani Abdullah said in an interview. Holdings in a travel firm, and engineering and information technology units may fetch another 300 million ringgit, he said.

Shares of Kuala Lumpur-based Felda dropped 14 per cent after opposition lawmakers and analysts said the company overpaid in its purchase of a 37 per cent stake in Indonesia's PT Eagle High Plantations for US$680 million on June 12. Felda manages 450,000 hectares (1.1 million acres) of land in Malaysia and Indonesia.

"Perception is something that really is affecting us a lot," Mr Mohd Emir said in Kuala Lumpur on Tuesday. The company's shares are "definitely undervalued," compared with other plantation companies, he said.

Felda has declined 26 per cent this year. It was the second- worst performer among companies with more than US$1 billion market value in emerging Asian nations last year, falling 51 per cent.

Eagle High, purchased from the Rajawali Group, is an "unparalleled strategic fit" because it gives Felda the largest contiguous landbank, Mr Mohd Emir said. It also offers access to the Indonesian downstream, fertilizer and seedling markets, he added.

The proposed implied enterprise value for the Indonesian land is about US$17,400 a hectare, compared with the US$25,900 Sime Darby Bhd paid for New Britain Palm Oil Ltd, Mohd Emir said. The Eagle High acquisition is expected to be completed as early as mid-September, pending regulatory and shareholder approval.

Felda, whose cash coffers halved to 2.9 billion ringgit as at the end of March from 5.7 billion ringgit in 2012, is considering raising debt to finance the purchase, Mohd Emir said. The debt, which would lift the company's gearing to 1:1, could be in the form of loans or bonds, whichever is most cost- effective, he said.

"We're looking at all the options we have, including the one to issue bonds," Mr Mohd Emir said.

Felda had 4.6 billion ringgit of debt as at the end of March, according to data compiled by Bloomberg. The company has operations in more than 10 countries across Asia, North America and Europe including upstream and downstream palm oil, rubber, sugar and logistics.

Rajawali, one of Indonesia's largest conglomerates, owns 65.5 per cent of Eagle High, according to data compiled by Bloomberg. Eagle High, through its subsidiaries, has rights to a total area of about 419,000 hectares of land and plantations in Kalimantan, Sulawesi, Papua and Sumatra provinces in Indonesia, its website shows.

Felda may monetize its other plantation estates, which are not under a land-lease agreement with the Federal Land Development Authority, through an initial public offering, Mohd Emir said. Talks on the sale are still in the early stages, he said.

Palm oil, currently trading near 2,200 ringgit a metric ton, may climb to 2,500 ringgit this year should El Nino curb production, Mohd Emir said. Every 100 million ringgit increase in the selling price will add 150 million ringgit to the group's revenue, he said.

In May, Felda reported a 98 percent drop in first quarter net income on lower palm oil prices and reduced sales volume. For the financial year ending December, the company's net income is forecast to rise to 315.7 million ringgit from 306.4 million ringgit in 2015, according to the average estimate of 15 analysts surveyed by Bloomberg.

BLOOMBERG