Monday, June 4, 2012

IPO ... Felda Global

The CPO Division …
 
A large part of its plantations is old and needs to be replanted, leading to high costs. It had 323.58ha of oil palm estates in Malaysia of which 53% consist of oil palm tress that are more than 21 years old. Oil palm tress have an average life of 25 years.
 
The replanting will keep its profitability under pressure as replanting costs are charged to profit and loss under Malaysia ’s accounting practice. The cost of replanting is similar to the cost of Greenfield development which is around rm15000 per hectare up to maturity, spread over three years. This means that it will need so spend about rm2.6 billion on replanting over the next five years.
 
Bumitama Agri Ltd (Listed in SGX) Versus Felda Global …
 
To compare growth potential, 71.9% of Bumitama’s total planted area of 119162ha is made up of immature and young plants. The rest are at the prime age of 7 to 18 years. The company also owns 72786ha of plantation land waiting to be planted.
 
In contrast 30.7% of Felda Global’s planted area is made up of immature and young trees. Tree are from the age of 10 to 20 years account for 16.4% and roughly 52.9% of the planted area was of old trees.
 
However Felda Gobal is still one of the leading global plantations players with advantages in economies of scale.
 
In terms of mature oil palm planted, Felda Global was the world’s third largest player in 2011 followed by Sime Darby, Golden Agri Resources Ltd, PT astra Agro Lestari Tbk and wilmar Intl Ltd. In terms lf CPO production, Felda Global produced 3.3 million tones making it the world’s leading producer.
 
FEDLA Global owns a 51% stake in MSM Holdings the leading sugar producer in Malaysia which contributed 29.4% to its revenue in 2011.
 
It is also bolstering its downstream portfolio with the launch of new consumer products. Its downstream arm Delima Products Sdn Bhd a subsidiary of Felda Global’s 49% owned Felda Global Holdins. Its existing portfolio includes Saji cooking oil, the market leader with 27% share of the olein segment. It also produces and markets Tiara and Tiga Udang cooking oil. Other products include Seri Pelangi margarines.
 
The Sugar Division …
 
The Felda group’s acquisition of Robert Kuok’s sugar business in 2009 has given the impending listing of Felda Group Ventures Holdings Bhd considerable boost with the unit contributing 30.7% to its group revenue for financial year ended Dec, second to the plantations business’ 44%. The balance 25.3% stake was contributed by its downstream business.
 
The sugar segment is undertaken through its 54% subsidiary MSM Malaysia Holdings Bhd.
 
The Malaysian government’s sugar subsidy to FGVHB’s sugar segment declined in 2011 as the price ceiling for refined white sugar was raised. However, the subsidy is expected to increase in 2012 due to higher global sugar prices while retail prices will remain unchanged in view of the impending 13th general election.
 
Volatility in the global price of raw sugar led the government to introduce a subsidy of 60 sen per kg of refined sugar in 2009. This was raised to 80 sen per kg in 2010 before rising again to 54 sen per kg currently (May 2012).
 
MSM is the leading sugar producer in Malaysia , producing 56.9% stake of total production volume of refined sugar in 2011.
 
MSM owns Klang Gula Felda Perlis Sdn Bhd and Malayan Sugar Manufacturing Co Bhd. Fela Global Ventures also bought PPB’s Group’s sugarcane plantation for rm45 million and its 50% interest in KGFP for rm26.3 million.
 
MSM also holds a 20% stake in Tradewinds Malaysia Bhd, which operates Central Sugar Refinery Sdn Bhd and Gula Padang Terap Bhd.
 
Under Felda Global Ventures, the sugar business held under MSM was floated in June 2011, raising rm423 million.
 
Nevertheless whole the sugar business may make FELDA Global Ventures different from other plantation stocks, it will not add much to its valuation. This is due to MSM’s business model where its margins are much static.
 
In Malaysia , refined white sugar products are controlled goods and the government has historically set price ceiling for these products. In recent years, there has been a sharp increase in the price of raw sugar in the international markets. Following such increases in raw sugar price, the government introduced a sugar price subsidy in 2009 so that the increase in the price of raw sugar would not be fully passed on to consumers of refined sugar products in Malaysia . Its performance thus depends partly on the government’s policies with respect to the sugar industry such as the level of subsidy which are beyond its control.
 
It was revealed that the government has locked in new sugar prices at 26 US cents per lb for the next three years compared with 17.5 cents previously leading to higher sugar subsidy bill in 2012.
 
Under the 10th Malaysian Plan, the government had started to slash subsidies on fuel and sugar as it undertakes reform of subsidies. However subsidy rationalization has been suspended as the government prepares for the general election which must be held by early 2013.
 
For MSM however, the higher sugar subsidy may not cover fully the rise in raw sugar costs in 2012 unless the ringgit strengthens.
 
Under the new structure, Felda Global Ventures operates 340000ha of oil palm estates under tenancy agreements with the Federal Land Development Authority (FELDA).
 
However some settlers against the cooperative Koperasi Permodalan FELDA to transfer of its 51% stake in FELDA Holdings to Felda Global Ventures. This means that FELDA Holdings remains a 49% associate of FELDA Global Ventures and KPF will not own any shares in the listed vehicles. Nevertheless, sources say the door still open for KPF to come in at a later time, likely with the cooperative taking up a stake in FELDA Global Ventures.
 
The funds raised from the IPO will be used for the acquisition of assets in the upstream and downstream sectors, loan repayments, capex.
 
The Shareholders …
 
At an indicative retail price of RM4.55 a share for its 2.188 billion shares that will raise proceeds of nearly RM10bil on listing. From the 255.37mil retail offering, Felda settlers and staff have been allocated 182.40mil shares.
 
Shareholders: French trading house Louis Dreyfus and Tan Sri Quek Leng Chan and former stockbroker Tan Sri Chua Ma Yu has emerged as cornerstone investors. The other cornerstone investors are PNB, EPF and Singapore abased Fidelity and Value Partners of Hong Kong.
 
QATAR Holding LLC, a unit of the Gulf nation’s sovereign wealth fund, has agreed to take part in the planned US$3 billion (RM9.4 billion) listing of Felda Global Ventures Holdings Bhd as a cornerstone investor. It would be the first time a Middle Eastern sovereign fund has acted as a cornerstone in a Malaysian initial public offering (IPO).
 
FGVH is offering 2.19 billion new shares, which is equivalent to 60% of its enlarged capital for its IPO. Louis Drefus will be allocated a 4.9% stake in FGVH while other cornerstone investors will receive their allocations from the 27% set aside for the public institutional funds.
 

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