Sukuk, loan mix for Felda's Indonesian Eagle High stake buy
By AFIQ ISA
Wednesday, 28 Dec 2016
Major deal: A man walks past a signboard outside a Felda palm oil plantation in Hulu Selangor.Last week, Felda announced that its subsidiary FIC Properties Sdn Bhd is acquiring 37 in PT Eagle High Plantations for US505.4mil (RM2.26bil). — Reuters
KUALA LUMPUR : The Federal Land Development Authority (Felda) is set to raise funds for its 37% stake acquisition in PT Eagle High Plantations Tbk (EHP) via a mix of loans and sukuk issuance.
Sources familiar with the matter told StarBiz that 50% of the acquisition figure of RM2.26bil would be financed through a loan with a major European banking group. The remaining funds will be raised through a sukuk issuance.
"The sukuk issuance could be announced as early as late January. The debt will be serviced by the cashflow generated by Felda Investment Corp's (FIC) assets," said a source.
It is probable that the sukuk would come with an explicit government guarantee, given that Felda is a government-backed agency.
This is because most institutional funds – which are the likeliest parties to subscribe to the sukuk – can only purchase high-rated bonds as part of their investment mandate. A guarantee would ensure that the bonds are rated at or close to the top investment grade.
Last week, Felda announced that its subsidiary FIC Properties Sdn Bhd is acquiring the stake in the Indonesian planter for US$505.4mil (RM2.26bil).
The Rajawali Group, led by Indonesian billionaire tycoon Tan Sri Peter Sondakh, is the current majority owner in EHP.
The deal has been close to two years in the making and was initially between Eagle High and Felda Global Ventures Holdings Bhd (FGV).
The deal has raised questions over its viability and potential benefits for the Felda Group. The purchase price, which translates to about 580 rupiah per share, is considered a pricey deal compared to EHP's share price in the open market.
Yesterday, EHP's shares closed at 278 rupiah per share, about 50% below the proposed offer price.
Felda defended the deal in a Dec 25 statement, saying that the offer price was justified by EHP's massive land bank and potential collaboration and cross-selling opportunities in Indonesia.
It had previously said that Felda needed to venture into new frontiers as additional plantation land in Malaysia has become scarce, hence the proposed deal for EHP which gives it access to 425,000 ha of Indonesian land bank as well as Rajawali's sugar business.
It is worth noting that the final offer price is considerably cheaper compared to the original terms which were proposed in May last year.
Back then, FGV had proposed to acquire the same 37% stake for US$680mil (RM3.04bil).
However, it is believed to have backed out of the deal due to its stretched balance sheet and depleting cash reserves, given that it has already undertaken a spree of multibillion ringgit acquisitions prior to the EHP proposal.
However, the group is expected to provide its expertise and assistance to help develop EHP's oil palm and sugar plantations in Indonesia despite the two remaining completely separate entities.
It is worth noting that the EHP deal may still have major financial implications for FGV. For example, the proposed restructuring of the land lease agreement (LLA) between FGV and Felda is unlikely to happen for the foreseeable future, given Felda's current fundraising needs.
The associated costs from the LLA has long been a drag on FGV's cost of production for its upstream business.
Under the LLA, FGV has to pay Felda a fixed lease amount of RM250mil per year in cash for 20 yars and a 15% share of operating profit from the sale of fresh fruit bunches derived from the estate land leased from Felda.
Back in July, FGV's CEO Datuk Zakaria Arshad told StarBiz in an interview that the planned restructuring of the LLA was still ongoing, though nothing concrete has been formulated yet.
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