Archive for June 2012

Buoyant debut reflects investors’ confidence in FGV

This is written by my colleague Zaidi Ismail.

KUALA LUMPUR: FELDA Global Ventures Holdings Bhd's (FGV) positive share performance yesterday reflects investor confidence in the stock as well as on Malaysia's business entities, Affin Investment Bank head of retail research Dr Nazri Khan said.

"Based on the premium, this is a good sign indeed as it shows investors have a lot of confidence in FGV, with a lot of potential buyers out there and also an active domestic fund buying activities," said Nazri.

He said for the medium term, the price of FGV shares hinges on the overall stock market performance of Bursa Malaysia, but Affin Investment targets the stock to hit RM5.52 and possibly RM6.00 by year-end.

FGV shares made its debut on Bursa Malaysia yesterday, closing 75 sen higher at RM5.30 compared with its retail offer price of RM4.55. 

He said despite Malaysia's defensive share market, which is going through a tough time, the stock held on well. 

"Now we just have to see its business model and what it plans to do with the money. I hope they (the company) will buy the plantation land quickly," said Nazri.

InterPacific Research head of research Pong Teng Siew also shared the same sentiment and said he was confident FGV shares could gain above RM5.80 within the next one month.

"The price earnings is based on its future geographical expansion and cost reduction when it can gain economies of scale via its international business. Collaboration with foreign investors also plays an important role as it offer economies of scale in terms of operations, boost competitiveness as well as open new opportunities for business expansion, he said.

An analyst at Public Investment said the strong performance was in line with its expectations, with a general target of between RM5.20 and RM5.50.

An analyst at a foreign research house said the stock performed faired quite well and FGV's earnings should rise by 10 to 15 per cent over the next two financial years as it expands its downstream operations which can be more profitable as value- added products fetch better price than selling harvested oil palm fruits.

He added that 37 per cent of FGV estates were maturing and that with current crude palm oil prices at over RM3,000 a tonne, the company was set to benefit.

Proposal to export excess oil palm seeds

This is written by my colleague Roziana Hamsawi.

KUALA LUMPUR: THE government is in favour of the suggestion that the country's excess oil palm seeds be exported. Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said the details of this would have to be worked out with the seeds producers and local planters.

"We need to see how those who are interested to export their seedlings must ensure that the local industry still gets sufficient seeds," he told Business Times after officiating at the 7th International Planters Conference here yesterday.

He said the ministry will discuss with the industry players but added that there is no urgency to lift the ruling on export restriction of germinated oil palm seeds.

"Our priority is the Malaysian planters because there is a lot of replanting being done here. We need to replant with the best seeds that we can get. We would not want to see our planters be deprived of any good seedlings," said Dompok.

The minister said being allowed to export oil palm seeds would no doubt be good for industry players as this would bring in additional revenue for them. "I am sure any plantation company which is into seedlings production, like Felda, would be interested in this," he said.

Malaysia produces 80 million seeds a year, of which 50 million are supplied to local farmers, leaving 30 million to be exported.

The government has since the 1970s, restricted the export of oil palm seeds, not only to ensure adequate supply to local farmers but to protect the seeds' intellectual property rights from being copied by other oil palm producers.

Malaysia, however, can only supply the seeds to Malaysian companies abroad and to certain countries like Thailand and Indonesia on a government-to-government basis.

Earlier in his opening speech at the conference organised by The Incorporated Society of Planters, Dompok said the plantation sector must continue to assume an important role in the food supply chain. "This is taking into account the food requirements of the global population, currently at seven billion and the lack of suitable land for further expansion of the planted area," he said.

He added that the industry needs to explore and invest in research and development to contribute towards optimisation of current land bank and development of new products.

Dompok also urged the industry to implement measures to ensure long-term reduction of foreign labour, adding that the government will continue to identify ways to promote the participation of local labour force as well as adoption of mechanisation activities.

"I would like to encourage the industry to provide focus on this area, including collaborating with research institutions in the production of new machineries for adoption by the plantation sector," he said.

Theatrics and 'false solutions'

KUALA LUMPUR: THE Rio+20 Earth Summit, which marked the 20th anniversary of the 1992 Earth Summit in Rio, left many questioning and criticising the "green economy" approach by western environmental activists as offering "false solutions".

In the midst of policy discussions to make the world a better place to live in, the United Nation's Conference on Sustainable Development had to contend with the usual theatrics from radical group Greenpeace's unfurling of an "Arctic Scroll", signed by legends such as Paul McCartney and Robert Redford, to be planted on the North Pole seabed to draw attention to global warming. 

Among topics discussed were destruction of rainforest, vanishing coral reefs, land grabs, the need for food security, irrigation, the role of women in food production, safe drinking water, energy access, clogged transit systems, jobs and sustainable development as a way of fighting poverty. 

The Rio+20 Earth Summit, which drew nearly 100 world leaders and more than 45,000 other people to Rio de Janeiro over the weekend, concluded in non-binding declarations.

It can, therefore, be inferred that many leaders from developing nations have realised that the 0.1 per cent environmental activist elites gathered in Brazil are ill-serving the majority of humans and wildlife species when they purport to speak for mankind and the planet.

The Rio+20 biodiversity and sustainability agenda, a follow-up of previous climate conferences held in Copenhagen, Cancun and Durban, is increasingly seen to curb development in emerging economies.

World Growth, a lobby group on poverty eradication, launched a report outlining how environmental campaigners are using the concept of 'free prior and informed consent' to destabilise property rights, undermine the rule of law and stymie economic growth in developing nations. 

World Growth chairman Alan Oxley said free, prior and informed consent (FPIC) was originally developed by a coalition of indigenous groups to have customary laws and property rights respected.

The FPIC concept arose to ensure that large-scale development projects consulted indigenous peoples appropriately.  But activists like Greenpeace and World Wildlife Fund (WWF) have distorted that concept. 

"They want it to apply to all communities, regardless of whether they are indigenous or not. They want FPIC to act as a veto right for anyone who objects to a development project, whether it's for food security, water security or resource use," said Oxley.

"The Greenpeace and WWF approach undermines sustainable development. Rather than increasing secure tenure, it compromises property rights and land tenure in developing countries," he added.

Oxley explained these green lobby group's opposition to electricity generation from coal will only force the poor in developing nations to rely on open fires for cooking and heating. It also destroy wildlife habitats, as people cut trees for firewood.

Indeed, more than 1.5 billion people around the world still do not have electricity, or have it only a few hours each day. Almost 2.5 billion people live on less than US$2 a day.

Millions die every year from diseases that could have be largely eradicated by access to more reliable, affordable electricity for cooking and refrigeration, clinics and hospitals, clean water, sanitation, and businesses that generate jobs and alleviate poverty.

Meanwhile, Malaysian Palm Oil Board (MPOB) chairman Tan Sri Shahrir Samad, when asked to comment on the outcome of the Rio+20 Earth Summit, said the way forward is for developing nations to carry on balanced economic development with environmental protection.

He said Malaysia still has more than half of its total land area under forest, national parks, wildlife sanctuaries and nature reserves. Oil palm plantations only occupy five million hectares, or 15 per cent, of the country's land mass.

Unknown to many, Shahrir highlighted that oil palm planters and the government had initiated the RM20 million Malaysian Palm Oil Wildlife Conservation Fund to protect wildlife surrounding plantations. 

Among conservation efforts implemented are surveys on orang utan populations in Sabah, the establishment of a Wildlife Rescue Centre and the improvement of riparian reserves.

A multi-stakeholder conservation project is being planned in the Lower Kinabatangan area involving oil palm plantation companies, Sabah Wildlife Department, green groups and conservation bodies like zoos, especially from developed countries.

Shahrir said the network of virgin jungle reserves in Peninsular Malaysia, Sabah and Sarawak protects biological diversity in small forested areas as gene pools within larger commercial forest reserves or agricultural areas.

He said the Sumatran rhinoceros, which is thriving at several locations in the peninsula, has viable breeding populations in Taman Negara and the Endau-Rompin forests. 

Over in Borneo, Sime Darby Foundation is working with Berlin's Leibniz Institute for Zoo and Wildlife Research on a rhinoceros breeding programme. It is estimated that around 50 of the Borneo sub-species of the Sumatran rhinoceros remain in the wild there.

"The oil palm industry has started the ball rolling by putting money where its mouth is. We invite expertise from zoos in developed countries to carry out more in-situ conservation projects here," Shahrir said.

Louis Dreyfus finalises pact with FGV

KUALA LUMPUR: Louis Dreyfus Commodities Asia has finalised the deal to be a strategic partner and investor for Felda Global Ventures Holding Bhd (FGV).

However, the French trader said its equity participation in FGV’s initial public offering (IPO) would be lower than what they had agreed on previously. This was “in acknowledgement of the strong result of the bookbuilding and demand for FGV offering”, Louis Dreyfus announced in a statement issued through FGV yesterday.

The announcement came amid reports that the 2.5 per cent FGV stake that was previously offered to Louis Dreyfus had been offered and snapped up by other investors. Louis Dreyfus would be taking a 0.5 per cent stake instead, according to a Reuters report quoting unidentified sources.

FGV is making a US$3.1 billion (RM9.89 billion) IPO next week.

Louis Dreyfus yesterday noted that it had reached a final agreement with its Malaysian partner on the terms of their strategic partnership. It added that while all other necessary approvals had been granted, the final agreement is still subject to approval from FGV subsidiaries’ board of directors.

Last month, FGV and Louis Dreyfus signed a memorandum of understanding for the latter to be a strategic investor and partner to enhance the marketing and trading of FGV’s palm oil business.

Louis Dreyfus is a global leader in agricultural commodities, specialising in global processing, trading and merchandising, while FGV is a global agricultural company as well as the world’s third largest oil palm plantation company.

Palm oil below 'feel good' level

KUALA LUMPUR: PALM oil prices yesterday continued its two-month decline, dipping below the "feel good" psychological level of RM3,000 per tonne for the first time since December 2011.

The third-month palm oil futures on the Bursa Malaysia Derivatives Exchange yesterday closed RM53 lower at RM2,953 per tonne.

"The uncertain sentiment in the Eurozone and slowing of China economic growth is affecting all oil palm plantation counters," said a palm oil dealer with a brokerage.

Apart from gloomy macro-economic sentiments, big funds and speculators are seen to have prompted erratic price movements in the capital markets.

"The sudden plunge in palm oil prices is contributed by hedge funds short selling. Since the run-up in the prices at the beginning of the year, there is not much room for speculators to make money," she said in a telephone interview yesterday. "So, they bet on falling prices and the shorting triggered a stampede among traders to short cover," she added .

She estimated that in the weeks ahead, there would be more selling than buying of palm oil futures. "The US dollar is likely to strengthen further if there is no sign of immediate recovery from the eurozone," she said.

A stronger US dollar is believed to have also contributed to falling commodities prices, from energy to agricultural products. The dollar gained seven per cent over the last three months. Yesterday, it traded at RM3.20 against the ringgit.

"A stronger US dollar didn't just hammer energy prices, it also pounded all other commodities. In the last two months, crude oil has tumbled 25 per cent while palm oil fell by 18 per cent," said a senior plantation analyst with a securities firm in Kuala Lumpur.

He explained that a stronger dollar makes commodities like palm oil more expensive to investors. When buyers have to pay more, the demand for palm oil decreases and that forces the prices to come down. "Palm oil prices have dropped but not that drastic. Like other edible oil prices, it is likely to fall further if the US dollar becomes stronger," he said.

Asked if falling palm oil prices would dampen Felda Global Ventures Holdings Bhd (FGV) debut on the Main Market of Bursa Malaysia at the end of the month, the analyst replied, "I don't think so. FGV shares seems to be well-supported by government funds and cornerstone investors."

FGV all set to shine

Felda Global Ventures Holdings Bhd's RM10.5 billion IPO is set to shine on the stock market in the immediate term. But long term interests in its shares will depend on how well FGV's growth plans are executed, OOI TEE CHING writes.

IN every crisis, there are always opportunities, so said a stock market punter. When contacted over the weekend, he said in the face of a seemingly never-ending downward spiralling eurozone, China's economic slowdown and heightened market volatility, the Felda Global Ventures Holdings Bhd (FGV) share sale could be a good money-making opportunity.

Declining to be named, the veteran investor said, "I don't think FGV's IPO is going to be dragged by near-term market sentiment because there's strong support from government funds and cornerstone investors."

According to FGV's prospectus, about 20 per cent of the deal has been set aside for Bumiputera institutions. On top of that, FGV has secured 12 cornerstone investors that will take up 19 per cent. This means a guaranteed allocation in return for a six-month lock-up.

Trading firm Louis Dreyfus Commodities Asia Pte Ltd, too, has agreed to buy a 2.5 per cent strategic stake. The French giant has entered into an offtake agreement to buy up one-third of FGV annual palm oil supply, a move that is mutually beneficial.

State governments, where the FGV's oil palm and rubber estates are located, will also purchase up to 12 per cent.

"There's only eight per cent of FGV that has been set aside for retail investors, including employees and Felda settlers. So, there's actually not very much stock left to be subscribed," the stock market punter said.

Last week, at the launch of FGV prospectus, Prime Minister Datuk Seri Najib Razak, who is also Finance Minister, hinted that there might not be enough FGV shares to go around as many big investors have block-booked their interests.

CIMB, Maybank and Morgan Stanley are joint global coordinators and Deutsche Bank and J.P. Morgan are joining them as bookrunners.

When asked to comment, the stock market punter said, "Najib most probably got wind that bookrunners for the FGV IPO are seeing more demand than they could possibly fill and had to scale back allocations."

"So, you see, when the Prime Minister hints that the FGV IPO will be well-received," he chuckled, "he knows what he's talking about".

Aberdeen Islamic Asset Management chief executive officer Abdul Jalil Abdul Rasheed, on the other hand, prefers to take a long term view. "We've not decided whether to bid for FGV's shares," he said. "We prefer to look at the fundamentals over a longer period of three years. That will reflect how the company is run."

Another Kuala Lumpur-based fund manager sees potential growth in FGV, citing aggressive replanting of unproductive trees with high yielding hybrids at 15,000ha per year. "FGV has a growth story to tell and its peers appear to be trading at similar or cheaper valuations," he said.

Subscription for FGV's shares opens to the public from 10am, May 31 and closes at 5pm on June 12.

FGV operates 343,521ha of oil palm estates in Malaysia that produce 5.2 million tonnes of fresh fruit bunches. Last year, high rubber prices prompted its 10,308ha rubber estates to yield 7,269 tonnes of cup lumps for sale to industrial users.

Its 49 per cent-owned associate Felda Holdings Bhd is a force to be reckoned with, having milled 3.3 million tonnes of crude palm oil last year. This gives it a seven per cent global market share.

FGV intends to strengthen its grip in the palm oil market by using the estimated RM4.5 billion IPO proceeds for upstream expansion and downstream development.

About RM2.2 billion will go to the purchase of suitable agriculture assets in Indonesia, Cambodia and Myanmar. Another RM840 million is set aside for selective acquisitions of oil and fats, manufacturing and logistics businesses.

Apart from being the largest crude palm oil producer in the world, FGV is also Malaysia's Sugar King. In January 2010, FGV bought over Robert Kuok's entire sugar business in Malaysia and a 20 per cent stake in Tradewinds (M) Bhd for RM1.8 billion.

Now, through its sugar unit MSM Holdings Bhd, FGV is able to produce 1.1 million tonnes of refined sugar a year. Its clients include F&N Beverages Manufacturing Sdn Bhd, Permanis Sdn Bhd and Nestle Manufacturing (M) Sdn Bhd.

Unknown to many, FGV has been profitable all this while. Its prospectus revealed that last year, FGV posted RM1 billion net profits from continuing operations, compared with RM929 million in 2010 and RM433 million in 2009.

In its filing to the stock exchange, FGV said its first quarter profit ended March 2012 amounted to RM223.2 million, 36.3 per cent less than RM350.2 million, a year ago.

FGV's management explained a tolling agreement with trading partner Bunge Ltd meant that the sale of soya and canola products are no longer reflected as revenues. Also, new incentive payments to plantation workers have raised production costs. These, collectively, dented its first quarter earnings.

FGV shares will do well

This is written by my colleague Eileen Ng.

KUALA LUMPUR: PRIME Minister Datuk Seri Najib Razak is confident that Felda Global Ventures Holdings Bhd’s (FGV) initial public offering (IPO) will be well received.

Speaking at the launch of the FGV IPO prospectus here yesterday, he said the listing of Felda’s arm was vital as it would reinvigorate the Malaysian capital market and boost the economy.

“We want to create wealth. God willing, I hope it will do better than Facebook,” he said.

The plantation giant’s IPO will be the second largest in the world, so far, this year after the US-based social networking service operator Facebook.

Facebook stock charted a lacklustre performance on its first day of trading on May 18 on New York’s Nasdaq Stock Exchange. 

It fell by more than 26 per cent since then from the US$38 (RM120) per share IPO price.

Najib said some bankers told him that the FGV shares, which are targeted to be listed on Bursa Malaysia on June 28, were being sought after. “So, there could be some disappointed potential investors who want to subscribe to the shares.”

He said signs of strong demand by foreign investors for blue-chip Malaysian companies were seen during his trips to London and New York recently. “The FGV listing proposal has attracted interest from two major commodities companies in Europe — Louis Dreyfus Commodities Asia and Vitol Group.”

Apart from these two strategic investors, according to the prospectus, there are 12 cornerstone investors, including foreign entities, who will pay more than RM3 billion to take up a 19.8 per cent stake in the company.

The prospectus states that 52.5 per cent of FGV is being offered to the public. Institutional investors are expected to pay RM4.65 per share. 

The retail price, after completion of the institutional book building, will be 98 per cent of the institutional price or RM4.55. The public can subscribe to FGV’s shares from 10am yesterday. The offer closes  on June 12 at 5pm.   

Najib also announced that the wives of Felda settlers would receive their RM5,000 windfall on July 7 in conjunction with Settlers Day (Hari Peneroka) as well as the opening of the new Felda building.

Earlier this month, the prime minister announced that 112,635 settler families would be getting a windfall of RM1.689 billion, or RM15,000 for each family.

Under the windfall scheme, each settler has been paid RM5,000, while another RM5,000 would be paid to each settler’s wife. The last portion of RM5,000 would be paid to the second generation of Felda settlers.

Najib assured the settlers that their interests would be looked after. 

He said of the 255.37 million retail shares offered, 182.41 million were allocated for settlers, Felda staff and those who had contributed to the organisation. The balance of 72.96 million shares were for public investment. 

“As such, claims that the government will manipulate the settlers by listing FGV are untrue and baseless. I am honouring my late father’s legacy and I will not allow any harm or difficulties to fall on any Felda member who had all this while sacrificed a lot for the nation,” Najib said.

FGV listing set to raise RM10.5b

KUALA LUMPUR: FELDA Global Ventures Holdings Bhd’s (FGV) initial public offering (IPO) is poised to raise RM10.5 billion, of which some RM6 billion will go back to the Federal Land Development Authority (Felda). FGV’s listing on Bursa Malaysia’s main market is slated for June 28.

FGV group president Datuk Sabri Ahmad explained that at the beginning, Felda owns 100 per cent of FGV. 

“The IPO offers around 53 per cent of FGV for sale. Another 10 per cent will go to state governments. That leaves Felda with 37 per cent in FGV after the IPO,” he said. 

“Felda will then split the 37 per cent stakeholding; of which 17 per cent will be held via Felda Asset Holdings Company Sdn Bhd and 20 per cent with Tabung Amanah, a fund set up solely for the benefit of Felda settlers,” he added.

Sabri was speaking to reporters here yesterday after the launch of FGV’s IPO prospectus by Prime Minister Datuk Seri Najib Razak.

The prospectus stated that 52.5 per cent of FGV is being offered to the public. Institutional investors are expected to pay RM4.65 per share. The retail price, after completion of the institutional book building, will be 98 per cent ofthe institutional price, or RM4.55. Subscription for FGV’s shares opens to the public from 10am yesterday and closes at 5pm on June 12.

Twelve cornerstone investors are expected to pay close to RM4 billion for a 19.8 per cent stake in the company.

“Pahang, Sabah, Johor, Terengganu, Negri Sembilan and Perak governments will collectively take up more than 10 per cent in FGV,” said the group’s chairman Tan Sri Isa Samad. Some RM2 billion is estimated to be paid for that stake.

Isa then explained that the Pahang and Sabah state governments will each hold five per cent in FGV as “that is where most of FGV’s estates are located”.

CIMB Investment Bank Bhd chief executive officer Datuk Charon Wardini Mokhzani, who was also present at the prospectus launch, said FGV’s IPO is expected to raise RM10.5 billion.

Group president Sabri said of that total, RM6 billion will go to Felda and the remaining RM4.5 billion to FGV. “About half of the RM4.5 billion going to FGV will be for upstream expansion and the other half, for downstream development.”

The prospectus estimated that RM2.19 billion of the expected RM4.5 billion would be set aside to expand FGV’s plantation landbank over the next three years. "We see Indonesia as a strategic location for oil palm plantation expansion. As for rubber, we're conducting feasibility studies in Myanmar and Cambodia," he added.

Apart from landbank expansion, FGV plans to carry out aggressive replanting of its unproductive oil palms at 15,000ha per year. If this plan materialises, FGV is expected to achieve the ideal age profile for its oil palm plantations by 2025.

As at March 2012, there was 343,521ha of oil palm estates leased by Felda to FGV. The company has greenfield held under 95 per cent subsidiary PT Citra Niaga, which owns 14,385ha of agriculture land in west Kalimantan.

FGV's sugar business is held via its unit MSM Malaysia Holdings Bhd. Its refineries in Perlis and Penang are capable of producing 1.1 million tonnes of refined sugar a year. These are then packed and retailed under the brandnames "Gula Prai" and "Gula Perlis".

In the mid-term, Sabri said FGV intends to pay out at least half of the company's profits as dividends to shareholders.