06/03/2010 (The Star Online) - Contrary to expectations, the listing of the giant group may not happen soon.

THE listing exercise of the world’s largest plantation conglomerate, Felda group, may still be up in the air but the on-going reorganisation within its units, Felda Global Ventures Holdings Sdn Bhd and Felda Holdings Bhd, indicates otherwise.

Since last year, the mammoth group has embarked on a series of “internal reorganisation” which led to the splitting up of its businesses into four “global business lines” – multicrop, oils and fats, oleochemicals and logistics and services – and the creation of five organisational support divisions, says a source close to Felda.

The main thrust of the restructuring is to transform Felda into a globally integrated and diversified agro-based multinational corporation (MNC).

Set up in 2007, Felda Global is wholly owned by statutory body Federal Land and Development Authority (Felda), while Felda Holdings’ equity is owned in a ratio of 51%:49%:1 golden share by Koperasi Permodalan Felda Bhd, Felda Global and Ministry of Finance Inc respectively.

Quite clearly, Felda Global has been earmarked as the key driver for the group’s global expansion and investments while Felda Holdings will focus on the domestic operations.

There is a great deal of speculation on which entity – Felda Global or Felda Holdings – will eventually be listed but it is believed that much still needs to be sorted out within the group before it decides to take that major leap to go public.

In fact, there was even market talk that Felda group is seeking to raise RM6bil through the listing exercise. Yet, to date, there has been no official confirmation from the group on the matter.

To list or not to list
According to the source, a listing exercise involving Felda will only be pursued if it “clearly adds value to the group and will not disadvantage any of its key stakeholders.”

Furthermore, the source says Felda group’s reorganisation is still in the early stages relative to the sheer scale of transformation being pursued.

“We anticipate the core part of the reorganisation efforts will be actively pursued for completion within the next two years. The finalisation of the corporate structure is dependent upon the progress of realising the group’s global vision, which is targeted to be achieved by 2018.”

 
On the basis of financial strength, some would concur that Felda Holdings, given its track record, is more suitable for an initial public offering given its consolidated revenue of RM15.3bil and pre-tax profit of RM819mil posted in financial year Dec 31, 2008 on the back of total assets of RM6.4bil.

This is compared with Felda Global group (excluding Felda Holdings) prior to the reorganisation, which recorded a consolidated revenue of RM1.3bil with total assets of RM1.7bil during the same period.

On the other hand, some quarters says Felda Global, Felda’s integrated commercial arm, could be ideal for a listing as it might need funds since it plans to spend over RM6bil in the next five years to expand its overseas presence in plantations and other related businesses.

Operationally, the Felda group has about 850,000 ha of planted area in Malaysia under its ownership and management, of which oil palm constitutes about 85%. Of the 850,000 ha, a total of 520,000 ha is owned by the settlers.

Felda, the statutory body, owns the balance 330,000 ha, from which it generated a revenue and pre-tax operating profit of RM3.1bil and RM1.8bil respectively in 2008 (Felda Holdings acts as the management agent of the plantation land).

In 2009, the group produced over 7.8 million tonnes of fresh fruit bunches and three million tonnes of crude palm oil (CPO) in Malaysia. It is worth noting that Prime Minister Datuk Seri Najib Razak is the eldest son of Tun Abdul Razak, a key architect of Felda.

Najib’s interest in Felda was well reflected in the move to place the group under the Prime Minister’s Department with a minister in charge of it. Coincidently, the highest concentration of Felda’s settlers is in Pahang, of which Pekan is Najib’s constituency.

The pull factors
An industry observer says that a listing would augur well with Felda group’s desired status of becoming a globally renowned MNC.

“The group would gain access to wider and competitive sources of capital, while a listed status would help raise the management standards.”

Felda Holdings group managing director Datuk Mohd Bakke Salleh, who is focused, principled and results driven, has been put in charge as the global president and chief executive officer of Felda Global along side Felda group chairman Tan Sri Dr Mohd Yusof Noor.

Close support from Felda, the statutory body which is currently headed by director-general Datuk Dzulkifli Abd Wahab, is seen to be another crucial ingredient to the success of Felda Global.

“The trio are said to be working well together. Felda is being watched closely by everybody. Lots of people are eyeing the top position in the group,” the source adds. He also believes that a listed status would open up more partnering opportunities with leading global players.

“Given the large size and numerous companies owned by the group, Felda has the liberty to select the companies/businesses with strong profit track records and offer attractive growth potential to be included for the listing.

“This is important to entice and sustain interests from investors globally, which would ultimately translate into superior valuation,” adds the source.

In fact, over 112,000 Felda smallholders and settlers could benefit from the listing exercise through equity participation in the listed entity.

“Equity participation for them could be designed in such a way that they can play an important role in the group’s growth process while at the same time enjoy better financial returns.”

Tapping synergies
Towards this, the source says Felda Global is established to lead and drive the group transformation process.

Traditionally, Felda Holdings has been playing the role of investment holding over currently 50 active and profitable companies, which are primarily involved in the upstream and midstream activities of the palm oil business with some in rubber, oleochemicals, cocoa and logistics.

More importantly, the group’s oil palm productivity, as measured by industry benchmarks such as oil extraction rate, yields and CPO per tonne per hectare, has improved significantly and is almost on par with industry stalwarts in the plantation sector.

Over five decades and four years, Felda Group has developed over 800,000 ha of oil palm and rubber plantations involving over 100,000 settler families in 278 Felda schemes in over 12 states in Peninsula Malaysia and Sabah and Sarawak. According to market players, Felda Holdings contribute about 7% to 8% of the world’s annual palm oil production.

“The reorganisation involving the integration of Felda Global and Felda Holdings is aimed at synergising and tapping the established business and functional expertise within the Felda Holdings group.

“Tasked to also expand and improve the group’s domestic operations, Felda Holdings will play a crucial role to support the growth of the Felda Global group,” says the source.

The global business lines signify the group’s choice of focus within the agri-business value chain that will among others, leverage on the group’s existing strength, streamlines the management of the various existing businesses, and exploit global market opportunities.

The source says key companies dealing with overseas business already placed directly under Felda Global include FGV North America Sdn Bhd, FGV Kalimantan Sdn Bhd, FGV Middle East Sdn Bhd and Felda IFFCO Sdn Bhd.