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Felda Global plans to renegotiate US$680 million Eagle High deal

The Felda Global Ventures Holdings Bhd. headquarters stands in Kuala Lumpur, Malaysia, on Thursday, June 28, 2012.

[KUALA LUMPUR] Felda Global Ventures Holdings Bhd, the world's biggest crude palm oil producer, plans to start new discussions to buy a stake in Indonesia's PT Eagle High Plantations in the first quarter after aborting an earlier plan for a US$680 million deal.

Bearish crude palm oil prices and a weakening ringgit "forced us to renegotiate the deal," chief executive officer Mohd Emir Mavani Abdullah said in an interview in Kuala Lumpur on Monday. "Indonesia is still very important to us, compared to other countries."

Felda and Eagle High reached a preliminary agreement on June 12 for a 37 per cent stake and planned to announce a final pact by mid-August, a deadline that has since been extended twice to the end of November. Since the first deal, the ringgit has fallen 12 per cent while crude palm oil prices have fallen 6.9 per cent.

Felda and Eagle High are still keen to pursue a deal and renegotiation will involve issues such as the size of the stake, pricing and the partnership in areas such as research and development, Mohd Emir said, declining to be specific. Both parties may re-start discussions in the first quarter when "there is more certainty" on market conditions, he said.

Felda may be looking for a lower price to take into account issues discovered during due diligence on the Indonesian company, two people with knowledge of the matter said in September. Felda shares dropped to a record low of 1.19 ringgit in August after opposition lawmakers and analysts said the company was overpaying for the purchase. The stock has since recovered to trade at 1.77 ringgit in Kuala Lumpur on Monday, though is still down 19 per cent this year. Eagle High has fallen 65 per cent this year to 141 rupiah.

Felda, whose cash coffers halved to 2.1 billion ringgit (S$696.2 million) as of the end of September from 5.7 billion ringgit in 2012, is considering raising debt to finance the purchase, Mohd Emir said in July. 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.

Felda had 5.1 billion ringgit of debt as of the end of September, according to data compiled by Bloomberg. The Malaysian palm oil producer reported a net loss that widened to 33.9 million ringgit in the third quarter from 9.3 million ringgit a year earlier because of lower palm oil prices and foreign exchange losses arising from the weakening ringgit. 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.