The Federal Land Development Authority’s (Felda) newly-appointed chairperson Shahrir Abdul Samad has defended the agency's move to acquire a 37 percent stake in PT Eagle High Plantations Tbk (EHP).
"I agree with the acquisition. We'd got a better price than (that of) Felda Global Ventures Holdings Bhd (FGV) (which had earlier planned to buy the shares)," Shahrir said at a press conference in Kuala Lumpur today.
He also announced that all members of the Felda Investment Corporation Sdn Bhd's (FIC) board of directors have been ordered to resign to facilitate reorganisation of the company.
He said: "FIC is critical to Felda. I've asked all FIC board members to resign."
FIC, a subsidiary of Felda, is engaged in non-plantation activities.
In June last year, FGV announced plans to purchase a 30 percent interest in EHP for US$632 million in cash and a further seven percent stake via an issue of 95 million new FGV shares worth US$48 million, which gave the deal a total valuation of US$680 million or RM2.89 billion then.
However, the talks fell through.
Felda recently signed a deal with Rajawali Group to acquire the 37 percent for US$505.4 million (RM2.26 billion), which turned out to be 26 percent less than what FGV had planned to pay for EHP, one of Indonesia’s largest palm oil companies.
Despite the better price negotiated, there were criticism that Felda was paying a hefty price for the stake in EHP.
"We all know (that) to get (such) a big block of shares in a company, you have to pay more than the market price as the valuation is not solely based on stock prices, but potential revenue that could come from the plantation company."
Shahrir asked if anyone could buy a 30 percent stake in plantation companies, such as IOI Plantation or KL Kepong, for a small premium.
"If anybody can get that, instead of buying Eagle High Plantation, we will buy IOI or KLK. Is it possible for a 30 percent stake at a small premium?" he said in jest.
Last month, Felda in a statement, explained that share price is not the accepted valuation method when it comes to a plantation company. The share price may not reflect true value of EHP.
The accepted valuation is enterprise value per hectare which is US$16,000 enterprise value per hectare, which is what Felda paid for the 37 percent stake.
This value compares favourably with recent transactions involving an Indonesian palm oil company, it asserted.
Shahrir believes EHP's results and dividend payout, which is expected within six months, would quash all the naysayers criticism.
Gov't to finance acquisition
He also said that the acquisition would not have any impact on Felda's debt as it would be financed by the government.
"No. We are not going to borrow. It will be financed by the government. We are just being the platform," he said.
Asked why the acquisition of EHP was given so much importance by Felda and FGV, he said it boiled down on the business joint venture concept at the Asean level and having a single voice in matters related to oil palm in the region.
This will give Felda an advantage as Malaysia and Indonesia command between 85 and 90 percent of the global palm oil market.
Asked if Felda is set go to an acquisition trail, he said Felda's focus was on settlers and its assets.
"(We are) reorganising our assets and are looking back at the returns. If the returns are not reasonable, but the value (of assets) have increased, then we sell. We cannot be sentimental about the assets," he said.
On losses incurred by some of the subsidiaries, Shahrir believes Felda management has the capabilities to perform or comply with the (agency's)governance.
"The ventures and losses were at the subsidiary level i.e. the broadband project and Sturgeon Fish Farming.
"I was surprised why Felda has a broadband (project). If we were to form a pact with Telekom Malaysia, it would be cheaper. However, going forward, Felda would be more stringent," he said.
Shahrir: FIC being reorganised
As for the order to the FC board members to resign, Shahrir said he would be carrying out a major management reshuffle of the agency.
He told Bernama that the resignation of the board members would pave the way for FIC's reorganisation.
"We've got to have good (corporate) governance implementation, so I've asked (them) to resign. (I will) fill up (vacant directors posts). Now we don't even have a chief executive officer in FIC," he said.
Incorporated on July 2, 2013, FIC is principally involved in the areas of property development, hospitality and other strategic investments.
The main objective of FIC is to focus on strategic businesses via acquisitions or collaborations that may benefit the company and its stakeholders in the long run.
According to FIC's website, over the brief course of its establishment, the company has entered into several strategic dealings, including an investment in IRIS Corporation Bhd, the takeover of property development company Encorp Bhd and an investment in Barakah Offshore Petroleum Bhd, which marked its first foray in the oil and gas industry.