FGV clarifies Reuters and answers The Edge

KUALA LUMPUR, June 28, 2015: Felda Global Ventures (FGV) Holdings Berhad has clarified that its deal with Rajawali on June 12 will provide the Indonesia-based company with only a 2.55 per cent stake in FGV.

FGV group president and chief executive officer Datuk Mohd Emir Mavani Abdullah in a statement on Friday pointed to a report by Reuters quoting Rajawali managing director Darjoto Setyawan that Rajawali is seeking at least a 21 per cent stake in FGV.

“We note that his comment was made in response to a speculative question, and that he dismissed any such possibility in his follow-up statement,” said Emir.

He clarified that no such agreement regarding an increased stake has been made nor have discussions taken place.

“We are currently going through the necessary process of due diligence, and do not feel that speculation at this time is productive or helpful,” he added.

Emir said FGV emphasises its commitment to its shareholders, especially settlers’ community, to uplift their economic interest and their ownership rights to their land is well protected through Felda.

He also reminded the media that any clarifications on the deal between FGV and Rajawali can be confirmed with the company’s  investor relations and corporate communications team.

In a separate statement, FGV expressed concern over an article written by journalist Leslie Lopez which appeared in The Edge Review and The Malaysian Insider on June 19.

The statement pointed out that FGV is a listed entity on the Bursa Malaysia and has a corporate communications, as well as an investor relations unit that would have been able to provide a response to the journalist should he needs clarification or comment from the company.

It expressed disappointment that the journalist had preferred to quote anonymous “portfolio investors and bankers” to get what it described as “a biased story”.

The FGV’s statement also listed points which it said could “put things into context, and state the facts” to rebut the offending article.

1. Palm Oil prices and commodities in general, have taken a beating since 2014, retreating from a high of USD865 p/mt in Jan 2014 to USD688 p/mt in Jan 2015

2. FGV’s revenue is made up of 70 per cent Palm Oil commodity trading and 30 per cent downstream ventures. When there is downward pressure on Palm Oil prices, FGV’s revenue will face equal pressure. Coupled with an unfortunate confluence of factors last year – including floods in the east coast that severely affected our production, and extreme ice conditions at our crushing mill in Canada – FGV posted lower than expected profits. This is something that happens in doing business – unexpected events – and we have accounted for it in our results.

3. The above transformation plan to move towards rebalancing our revenue streams to 60 per cent palm oil trading and 40 per cent downstream business.

4. FGV’s current average age profile of our planted hectarage is 15.5 years, putting it at the matured and aging end of the spectrum.

5. Additionally, out of the 450,000 hectares under FGV’s management, 355,864 are subject to the land lease agreement (LLA) with Felda, pushing up our operating costs.

6. To secure long-term sustainability and viability of our business, FGV needs more landbank and planted hectarage with a younger age-profile. Crude palm oil prices are at a historic low and are expected to rebound to an uptrend over the very near term. FGV must be prepared to take advantage of that with lower cost of production, higher volumes, better efficiencies and margin and strategic positioning to leverage the downstream business.

7. FGV have been looking outside of Malaysia for some time, including Africa, Myanmar and Indonesia. The Eagle High Plantation (EHP) landbank presents the largest contiguous landbank, from a single vendor that is also an unparalleled strategic fit.

8. It is important to note that the proposed implied EV (Equity Value) / ha for the planted hectarage of EHP is approximately US$17,400 per hectare – lower than the recent transactions involving Sime and NBPOL (EV / hectare of US$25,900) and Unico Plantations (EV / hectare of US$23,500). In comparing with recent Indonesian transactions, hectarages involved are small in nature, of less than 70,000 hectares.

9.The valuations quoted by the writer for domestic Indonesian plantations do not make reference to the location, size and age profile of the landbank.

10. FGV has explained the reasons for the lower revenues and commits to implement the transformation plan to ensure higher profitability for the company. Although revenues have dropped in the first quarter, FGV is a profitable company and its transformation strategy is focused on delivering higher returns to shareholders over time.

11. In a depressed market and current low share price that does not reflect the intrinsic value of the company, the management is focused on the medium to long term view, putting into place our three-pronged strategy of revenue enhancement, cost optimisation and operational excellence to boost revenues and margins, which will result in higher shareholder value. Again to imply that FGV is paying a premium to the current share price is simplistic and exhibits a clear lack of understanding by the writer on deal valuations.

12.To buy from the open market, you need a large enough block available, and even so, prices will be pushed up if we try to acquire what is available. More importantly – it discounts the unparalleled strategic fit for FGV and Malaysia in obtaining access to the Indonesian downstream market, sugar market, fertilizer market and 240 million consumer market that this partnership with the third largest Indonesian conglomerate offers.

13.Indonesia is ‘serumpun’ and FGV is happy to have a known quantity as a partner, the third largest diversified conglomerate in Indonesia, which has also exhibited trust in FGV by agreeing to a 2.55 per cent stake in the enlarged share capital of FGV once the transaction is completed.

14. FGV has not made an announcement of the financing mechanism yet, so it is puzzling how the writer got this assumption. FGV is currently discussing the funding structure with its investment bankers to get the best deal possible for its shareholders.

15. It is also important to note that should FGV go for an all debt structure, its gearing will only go to 1:1, which is very reasonable for a high-growth palm oil plantation company.

16.FGV wants to reiterate that its dividend policy will remain unchanged and will be an important consideration in the structure of the funding.

17.The 37 per cent will result in FGV becoming the single largest shareholder with representation on the board. FGV was pleased to have the local parties to continue to run the company with its input, as there is continuity and great expertise in the local team. To suggest otherwise is a folly.

18.FGV is not looking for majority control as it will trigger a MTO that will not prove to be viable.

19.FGV emphasizes the deposit paid is interest-bearing and fully-refundable pending the results of the due diligence and final decision of the board. The quantum of the deposit is merely a gesture of our firm commitment to the transaction and in return for exclusivity during the negotiation period. It is mischievous to suggest anything else.

20.In the final analysis – this is a purely commercial transaction, which will result in the making of an Asean palm oil giant, a global game-changer with clear benefits for both countries and companies.

21.Political innuendos and references to other government-link companies and personal relationships are unnecessary and take away from the fact that this transaction will be a game- changer for the palm oil industry globally and FGV will be firmly on its way achieving the goals as set out in its transformation plan, on track and on time.

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Shahrum Sayuthi

Shahrum Sayuthi