PETALING JAYA: Analysts have generally given the thumbs down to Felda Global Ventures Holdings Bhd’s (FGV) proposed acquisition of a substantial stake in PT Eagle High Plantations Tbk, with one firm stating that the deal would pose an overhang to the share price that has been battered down to its lowest level since its listing on June 28, 2012.
FGV’s shares plunged 21 sen or 11.29% to a record low of RM1.65, as investors unwind their positions in the plantation company following its acquisition that has been deemed expensive and unfavourable to the company by many analysts.
FGV has proposed to acquire from Rajawali Group a 37% stake in Eagle High – the third-largest plantation group listed in Jakarta – for US$631.5mil (RM2.37bil) cash and 95.44 million new FGV shares, representing 2.55% of the enlarged and issued share capital of the group. It also plans to buy 95% of a sugar project from Rajawali for US$67mil.
“We worry that Rajawali, which will end up with 95.4 million FGV shares, could sell in the open market. This will be an overhang on FGV’s share price,” Credit Suisse said in a report, adding that it believed the deal was “too expensive for FGV”.
Although FGV will be the single largest shareholder of Eagle High, the operations will continue to be handled by the Rajawali Group.
Credit Suisse expects FGV’s net gearing to increase to 102% in financial year 2015 from an earlier forecast of 51%. Its net debt will increase to an estimated RM6.6bil from RM1.7bil as at March 31.
Nonetheless, it said FGV could still walk away from the deal after its due diligence or if it did not get the required approval from FGV shareholders. The planter needs more than 50% approval from its shareholders.
Credit Suisse has downgraded FGV to an “underperform” from “neutral”, with a target price of RM1.60.
AllianceDBS Research said FGV might face selling pressure on the acquisition of Eagle High – priced at more than a 70% premium to the latter’s closing price.
CIMB Research and KAF-Seagroatt & Campbell Securities echoed Credit Suisse’s view that the acquisition was expensive.
KAF-Seagroatt said FGV’s lofty acquisition price was quite earnings-dilutive, based on its estimates, while gearing would also spike.
“The group’s extravagant spending habit, which contributes to no earnings uplift, continues to worry us,” it said.
KAF-Seagroatt explained that the offer for Eagle High translated to a per share value of 774 rupiah, which is a 72% premium over its last-traded price of 450 rupiah, a forward price-to-earnings ratio of 35 times based on recent consensus forecasts and an enterprise value per ha (EV/ha) of US$17,200.
While the EV/ha is a more relevant measure and may not seem excessive compared to recent transacted prices for brownfield estates in Malaysia, it is significantly above the price for those in Indonesia, which has gone for less than US$10,000 per ha.
Maybank Investment Bank Research expects some near-term selling pressure on FGV and its shareholders may reject the deal.
“We believe that this proposal is unlikely to go down well with investors, as the acquisition is likely to be earnings per share dilutive in the short term, given the steep transaction price for a non-controlling stake of 37%,” it said.
Separately, Rajawali Group, one of Indonesia’s biggest conglomerates, is reportedly selling assets and reviving the initial public offering (IPO) of its unit to beef up its cash for future acquisitions.
Rajawali Corp managing director Darjoto Setyawan said the company would use the proceeds from the sale to strengthen its internal funding for future opportunities.
“During current tough market conditions, cash is king. We want to strengthen our financial position in preparation for more new business opportunities,” Darjoto was quoted as saying.
Rajawali also plans to revive the IPO of its gold mining unit, PT Archi Indonesia, in the first quarter of 2016.
The Rajawali Group took control of Eagle High late last year after a corporate exercise which included a rights issue, where it suscribed to the shares at only 400 rupiah each.
The rights issue raised close to 11 trillion rupiah, which was used to acquire the plantations of the Rajawali Group.
