MARKET DEVELOPMENT
No Bank Negara Green Light Yet for FGV Purchase of PT Eagle Stake
No Bank Negara Green Light Yet for FGV Purchase of PT Eagle Stake
28/09/2015 (The Star) - Felda Global Ventures Bhd (FGV) has not remitted the deposit for its purchase of a substantial stake in Indonesia-based PT Eagle High Plantations Tbk because approvals have not been obtained yet.
According to banking sources, Bank Negara has not approved the company’s request to remit the 23% deposit of US$174.5mil as part of the preliminary agreement announced in June due to a few reasons.
Among them is that the board has not approved the deal yet as there are some outstanding issues on the status of the land, according to sources.
When the deal was announced in June, the deposit amounted to RM656.12mil based on an exchange rate of RM3.76 to the US dollar. The exchange rate now is about RM4.37 against the US$1.
FGV is believed to have completed its due diligence. But no decision on the deal was made when the FGV board met recently, sources said.
“The board is seeking more clarity on the issues that had been raised in the due diligence. Until it is sorted, the central bank is not likely to give the approval for the remittance of the funds,” said a source close to the deal.
On June 12, FGV announced a proposed acquisition of a 37% stake in PT Eagle High Plantations from the Rajawali Group of Indonesia that is controlled by tycoon Tan Sri Peter Sondakh for US$680mil.
The company also planned to inject a further RM249mil to purchase a 95% stake in a sugar project.
The proposed deal, which has attracted scrutiny because of its valuations and the impact on FGV’s balance sheet, required a 23% deposit amounting to US$174.5mil to signify the commitment to the transaction by the Malaysian plantation company.
In return, the Rajawali group would give FGV exclusive rights to the deal during the negotiation period.
FGV would have to take up borrowings if it is to go ahead with the deal.
According to sources, one of the concerns is on compliance with the Roundtable on Sustainable Palm Oil (RSPO).
It is learnt that Eagle High has not got the approval from the Indonesian authorities to convert its huge forest land to plantation land bank. This could take up to a year given that land issues in Indonesia are complicated.
Eagle High has 425,000ha, of which less than 180,000ha are planted and the trees are eight years of age on average.
Land leases in Indonesia are generally for 30 years, with an option to extend for another 30 years.
The Felda group is one of the founding members of the RSPO initiative.
Palm oil that comes with RSPO certification has a wider reach especially for downstream operations. Meeting the sustainable practices would ensure better market access in the European and Western countries, which are increasingly demanding for more sustainably produced palm oil.
Until the FGV board gives its nod on the due diligence, the central bank would not likely give the approval for the remittance of the deposit, said a banking source.
Bloomberg recently reported that FGV might ask for a lower price to buy Eagle High taking into account issues discovered during the due diligence. Both parties planned to announce the final pact on the agreement by Oct 31, a deadline that was extended from mid-August.
FGV, which is on a land bank expansion mode hopes to tap into Eagle High, which has 67% of its total land bank in Kalimantan and the rest spread across Papua, Sulawesi and Sumatra.
The deal has been deemed expensive. Eagle High’s entire market capitalisation stood at US$1.04bil in June versus US$680mil that FGV proposed to pay for a 37% stake.
Analysts said that with the weakening of the ringgit against the US dollar, FGV could end up forking out more for that stake, to the tune of a further US$30mil-US$50mil. This would increase FGV’s net gearing to 0.81 times from 0.36 times as at end-June this year.
The ringgit was traded at around 4.37 to the US dollar on Friday. With the weakening ringgit, analysts said it would be good for FGV to revise downward its offer price to Rajawali for the Eagle High stake.
Since the deal was announced, Eagle High shares have fallen more than 42%, while crude palm oil down by 12% on concerns of slowing China growth.
At the close of RM1.49 on Friday, FGV’s market capitalisation stood at RM5.39bil, a far cry from its value when it was first listed in June 2012.
According to banking sources, Bank Negara has not approved the company’s request to remit the 23% deposit of US$174.5mil as part of the preliminary agreement announced in June due to a few reasons.
Among them is that the board has not approved the deal yet as there are some outstanding issues on the status of the land, according to sources.
When the deal was announced in June, the deposit amounted to RM656.12mil based on an exchange rate of RM3.76 to the US dollar. The exchange rate now is about RM4.37 against the US$1.
FGV is believed to have completed its due diligence. But no decision on the deal was made when the FGV board met recently, sources said.
“The board is seeking more clarity on the issues that had been raised in the due diligence. Until it is sorted, the central bank is not likely to give the approval for the remittance of the funds,” said a source close to the deal.
On June 12, FGV announced a proposed acquisition of a 37% stake in PT Eagle High Plantations from the Rajawali Group of Indonesia that is controlled by tycoon Tan Sri Peter Sondakh for US$680mil.
The company also planned to inject a further RM249mil to purchase a 95% stake in a sugar project.
The proposed deal, which has attracted scrutiny because of its valuations and the impact on FGV’s balance sheet, required a 23% deposit amounting to US$174.5mil to signify the commitment to the transaction by the Malaysian plantation company.
In return, the Rajawali group would give FGV exclusive rights to the deal during the negotiation period.
FGV would have to take up borrowings if it is to go ahead with the deal.
According to sources, one of the concerns is on compliance with the Roundtable on Sustainable Palm Oil (RSPO).
It is learnt that Eagle High has not got the approval from the Indonesian authorities to convert its huge forest land to plantation land bank. This could take up to a year given that land issues in Indonesia are complicated.
Eagle High has 425,000ha, of which less than 180,000ha are planted and the trees are eight years of age on average.
Land leases in Indonesia are generally for 30 years, with an option to extend for another 30 years.
The Felda group is one of the founding members of the RSPO initiative.
Palm oil that comes with RSPO certification has a wider reach especially for downstream operations. Meeting the sustainable practices would ensure better market access in the European and Western countries, which are increasingly demanding for more sustainably produced palm oil.
Until the FGV board gives its nod on the due diligence, the central bank would not likely give the approval for the remittance of the deposit, said a banking source.
Bloomberg recently reported that FGV might ask for a lower price to buy Eagle High taking into account issues discovered during the due diligence. Both parties planned to announce the final pact on the agreement by Oct 31, a deadline that was extended from mid-August.
FGV, which is on a land bank expansion mode hopes to tap into Eagle High, which has 67% of its total land bank in Kalimantan and the rest spread across Papua, Sulawesi and Sumatra.
The deal has been deemed expensive. Eagle High’s entire market capitalisation stood at US$1.04bil in June versus US$680mil that FGV proposed to pay for a 37% stake.
Analysts said that with the weakening of the ringgit against the US dollar, FGV could end up forking out more for that stake, to the tune of a further US$30mil-US$50mil. This would increase FGV’s net gearing to 0.81 times from 0.36 times as at end-June this year.
The ringgit was traded at around 4.37 to the US dollar on Friday. With the weakening ringgit, analysts said it would be good for FGV to revise downward its offer price to Rajawali for the Eagle High stake.
Since the deal was announced, Eagle High shares have fallen more than 42%, while crude palm oil down by 12% on concerns of slowing China growth.
At the close of RM1.49 on Friday, FGV’s market capitalisation stood at RM5.39bil, a far cry from its value when it was first listed in June 2012.