Shares of Malaysia’s Felda Global Ventures Holdings Bhd (FGV) fell to a record low today, after analysts said its plan to spend around US$680 million on a stake in Indonesia’s PT Eagle High Plantations Tbk was expensive.
The world’s third-largest palm plantation operator plans to buy 37 percent of Eagle High from Rajawali Group, paying cash for 30 percent and issuing shares to buy the other 7 percent.
It also plans to buy 95 percent of a sugar project from Rajawali for around US$67 million.
The Eagle High deal would combine FGV’s downstream capabilities with Eagle High’s land bank, and reduce operating costs, the two companies said in a joint presentation on Friday.
“We are of the view that the proposed acquisition price for EHP (Eagle High Plantations) is too high,” CIMB Research analyst Ivy Ng said in a research note dated yesterday.
Ng cut her target price for FGV shares to RM1.69 from RM1.91 and kept her recommendation on the stock at ‘reduce’.
FGV would be Eagle High’s largest but not controlling shareholder, and the acquisition could dilute FGV’s net profit for its 2016 fiscal year by 10 percent, Ng said. Net gearing - or debt - would rise to 1.43 times FGV’s shareholder funds from 1.05 times, and cash flow would also be hurt, she said.
FGV shares fell as much as 10 percent today when trading in the stock resumed after a suspension was imposed pending an announcement. Eagle High shares fell more than 5 percent after rising over 12 percent in Friday trade.
Rajawali plans to sell 11.7 billion Eagle High shares to Felda for 678 rupiah to 800 rupiah per share, Rajawali managing director Darjoto Setyawan told reporters on Friday.
FGV’s cash requirement for the purchase would be a “tall order”, Alliance DBS Research said. Felda has a cash pile of RM2.9 billion but may need to take on more debt, it said.
FGV’s first-quarter net profit slumped nearly 98 percent from a year earlier on weaker plantation business and steep losses in its downstream segment.
The company also announced earlier this month that it planned to buy land with mature palm trees in east Malaysia for US$174 million.