Felda seeks to buck trend with $3.2bn IPO To understand why the second biggest initial public offering this year after Facebook is going ahead even as household names such as Formula One are abandoning their plans, it pays to look at a map of Malaysia. The south-east Asian country has thousands of hectares of palm oil plantations, most dotted in the eastern state of Pahang and managed by a company called Felda Global Ventures. It is this company, barely known outside Malaysia, that plans to buck the trend of abandoned IPOs by pressing ahead with a $3.2bn issue that would be second only to Facebook in size this year. On Thursday it priced the IPO at the upper end of an indicative range, at M$4.55 (US$1.43), two people familiar with the deal said. An official announcement is due this week. The deal would be Malaysia's third biggest IPO on record, behind Petronas Chemicals" $4.8bn IPO in 2010 and that of mobile group Maxis a year earlier, according to Dealogic. FGV owns and runs 355,864 hectares of plantations, mostly in Pahang, on land leased and managed by Felda, a government entity that traces its roots back to Malaysian independence in 1957. It was set up as a land redistribution project to settle farmers on to huge areas of deforested land made available for cultivation of palm oil and rubber. Now, the government of prime minister Najib Razak - whose father conceived the Felda project when he was premier - is backing the sale of 60 per cent of FGV ahead of crucial nationwide elections expected within months. But the IPO, like others in an increasingly full pipeline for Bursa Malaysia, the country's exchange, are heavily domestic affairs, relying on support from cash-rich Malaysian pension funds. This helps explain why Malaysian companies appear to be immune from the torrid market environment in New York, London and Hong Kong. About 72 per cent of 2.19bn existing and new shares in FGV - also referred to as Felda - have been allocated to a mixture of pension funds; "bumiputeras," or ethnic Malays; state governments; and "selected" domestic investors approved by the trade ministry. Felda also has secured commitments from 10 "cornerstone" investors including sovereign wealth funds from Singapore and Qatar. Joint global co-ordinators are CIMB and Maybank, Malaysia's two largest investment banks, and Morgan Stanley. A $2bn IPO planned by Malaysian state investment agency Khazanah of its Integrated Healthcare Holdings subsidiary, has secured cornerstone investors for over half the issue, people familiar with the deal say. This, combined with the political backing of the government, should ensure the success of the listings - at least initially, analysts believe. "It is a unique situation where IPOs can proceed irrespective of the conditions outside Malaysia," says Alan Richardson, senior portfolio manager at Samsung Asset Management in Singapore. Edwin Low, head of investment banking for Singapore and Malaysia at Credit Suisse, says that this underpinning should encourage foreign investors focused on how the after-market will perform. "Foreigners play this market because they know there is a floor of domestic support," he says. For investors assessing Felda's future cash flow potential, the IPO is a bet on the prospects for palm oil at a time when the industry faces a slowdown in output as productivity falls from ageing trees. Standard Chartered estimates that more than 20 per cent of trees in Malaysia are over 25 years old, which is close to the end of their productive life. That should be bullish for palm oil prices in the medium term, the bank says. Felda says the company will invest 49 per cent of IPO proceeds to acquire "further plantation assets" within three years. The group's prospectus records pro forma earnings before tax, interest, depreciation and amortisation of M$2bn for the year ended December. It had M$6.2bn in cash and cash equivalents and M$2.6bn in short and medium-term debt. Whether those numbers will drive investor appetite, or whether Malaysian companies continue to be propelled to the market by less tangible domestic factors, remains to be seen. "The minute you have an asset which is low quality where people get overly aggressive on valuations and it performs less well in the after-market there may well be a setback in investor confidence in Malaysia," says Mr Low. But so far they've all made money for investors.