MAY
18 — Prime Minister Najib Razak last week announced a “windfall” of RM15,000 to
each Felda settler family.
The
planned payout is to come from the initial public offering of the Felda Global
Ventures Holding (FGVH). As part of the IPO of FGVH, Felda will be disposing
1.21 billion of its current FGVH shares at RM4.65 each, and from which Felda
stands to make RM5.62 billion if these are fully taken up.
Among
the targeted anchor investors are Employees Provident Fund (EPF), Permodalan
Nasional Berhad (PNB), Lembaga Tabung Angkatan Tentera (LTAT) and other
national and Bumiputera funds.
Ahead
of the share sale to be held by June, Felda settlers have been given an
assurance by Najib that the listing would yield profits. He had also lashed out
at those opposed to the scheme, saying that they are merely trying “to confuse”
the people.
At
this stage it is not clear yet who is trying to confuse the settlers or other
Malaysians since the planned IPO is a highly complicated transaction whose full
details have not been thoroughly unravelled and evaluated by professional
market analysts. This is because many analysts are fearful that they may
antagonize the government and end up on the wrong side of the authorities.
Felda
accounts for around 18 per cent of the country’s total palm oil output. The
idea behind FGVH is to turn this newly created corporate entity into a “global
conglomerate”.
The
blogger Pirates of Putrajaya, who is one of the few to have studied the
considerable documentation pertaining to the IPO, explains that what FGVH is
offering to the public is its 49 per cent interest in Felda Holdings, of which
51 per cent is owned by Koperasi Permodalan Felda Malaysia Bhd (KPF) and its
one golden share held by the Ministry of Finance.
More
illuminating examination of the convoluted deal is to be found in the Pirates
of Putrajaya blog.
With
such a huge amount of newly-minted money in the works, it is only natural that
the FGVH listing should be subject to scrutiny with regard to its political and
socio-economic implications.
One
is that the Felda folk are a vital constituency numbering 112,635 settlers who
will be receiving payment as a “hadiah” timed coincidentally just before
imminent elections.
Two,
more important than the voter headcount, the so-called “windfall” for the settler
electorate is to reinforce the political message that Umno has always taken
care of the Malay rural constituencies.
Three,
it is impossible to downplay suspicions that the purpose of the exercise is to
fill the Umno war chest on the eve of an imminent election.
To
read more on the financial repercussions on the Felda settlers in the long
term, please go to the Pirates of Putrajaya website.
Even
if readers are not convinced by the political analysis of blogger “Pirates”, it
is clear that settlers are not getting the best deal out of this FGVH listing.
Why
list FGVH and not FHB?
Felda
Holdings Bhd (FHB), which is the entity that manages the oil palm plantations,
is the jewel in the crown that makes most of the profits. (FY2010, it achieved
net profit of RM614.2 million on turnover of RM14.9 million).
Felda’s
plantations and related businesses are parked under FHB, which also manages
some 355,000 hectares leased from Felda in addition to the 500,000 hectares
belonging to settlers that it oversees.
FGVH
is presently owned 100 per cent by Felda (i.e. the government) and its major
source of profit contribution — i.e. 85 per cent of its earnings — comes from
FHB.
KPF
is owned by 220,000 stakeholders, of which half are pioneer settlers. KPF is
therefore the vehicle where the interests of the settlers are in alignment.
FGVH
also owns MSM, a listed refined sugar producer; Twin Rivers, a loss making
investment in downstream oleo chemical companies in North America; and a joint
venture business in the Middle East with IAATEC, in distribution of specialty
fats.
Without
FHB, the FGVH IPO will not fly.
In
CPI’s opinion, the FGVH listing is less beneficial than listing Felda Holdings
itself, which makes most of the profits.
Why
shift profits into a company with poor performance and with no strong track
record to justify a listing, and with the company belonging to the settlers
getting the short end of the deal?
It
would not only be simpler and more straightforward, but also commercially more
logical and less costly to list FHB instead of FGVH, where KPF has a 51 per
cent interest and FGVH has a 49 per cent interest.
Why
is it necessary to do a swap when the bulk of the profit comes from FHB? The
profits are in the upstream oil palm plantations, not the downstream
oleo/specialty fats etc or refined sugar business that FGVH owns. The
integrated strategy to justify using FGVH is just a distraction.
A
successful listing of FHB would probably have at least as high, if not higher
market capitalisation than that of FGVH, and will be worth more to the KPF
stakeholders.
The
better alternative is for the listing of FHB. Of course, if FHB were listed,
most of the benefits would accrue to KPF and the settlers, and there will be no
scope to use a vehicle like FGVH for potential ‘monkey business’ to benefit a
horde of other interest groups.
Readers
are reminded that there are 980 million shares on offer to the public. Of this
980 million, 286.8 million will be on offer to local/foreign institutional and
selected investors, 419.5 million to Bumiputera institutions and selected
Bumiputera investors approved by the Ministry of Trade and Industry, 200.6
million to eligible employees and 72.9 million to the Malaysian public.
How
and to whom the bulk of these 980 million shares are allocated is where
manipulation can take place.
In
a nutshell, the FGVH structure would appear to be a lot less efficient in value
creation for shareholders of FHB than just simply listing FHB itself.
There
is no need to have another layer of management in FGVH, as well as going
through all the costly and unnecessary restructuring that does not only fail to
add value to the market capitalization but also does not maximize the value to
KPF’s shareholders.
The
settlers and stakeholders of KPF appear to be much worse off in agreeing to the
deal, notwithstanding all the sweeteners. This is because we must ask the
question of who will actually benefit from the FGVH listing. It is certainly
not the settlers, especially if they could end losing a controlling stake in
their jewel in the crown (Felda Holdings), in substitution for a minority
interest in FGVH.
If
the prime minister has been advised that the current listing is the best way to
benefit Felda settlers, he has been wrongly advised. He needs to do a quick
turnaround, scuttle the listing in the interests of settlers as well as in the
national interest, and go back to the drawing board. — cpiasia.net
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