KUALA LUMPUR – The Federal Land Development Authority’s (Felda) decision to acquire a stake in Indonesia’s PT Eagle High Plantation Tbk (EHP) is vital to its progress as it has reached a stage where it needs to reinvent itself after six decades in the industry.
Felda deputy director-general (management) Muzzammil Mohd Nor said failing to do this would mean Felda would remain stagnant, while others in the global palm oil sector were moving forward.
Expounding the rationale behind the transformative deal, Muzzammil said in an interview yesterday it is strategically too important to pass up as it would make Felda one of the biggest global palm oil plantation companies.
Felda, via its investment arm, FIC Properties Sdn Bhd (FICP) is making an investment of US$505.4 million (RM2.26 billion) to acquire a non-controlling 37% stake in EHP from Rajawali Group. EHP is one of Indonesia’s largest listed palm oil plantation.
On claims that Felda could not afford to finance the deal, Muzzammil said Felda had secured government financing for this deal.
“The government supports our initiative to expand our operations through this deal as it will not only benefit Felda, but also all the other stakeholders in the industry,” he said.
Refuting claims that the deal is overpriced, he said the derivation of an acceptable price took into consideration multiple factors, which included the quality of the plantation assets, its operational strengths, financial stability, economic growth outlook, and ownership availability.
“We took our time to conduct a thorough due diligence process which included bringing over our Felda planters to not just view the asset, but also to engage with the Indonesian planters who provided us valuable insight and feedback on the company.
“There are also many terms that we have negotiated into the SPA that would safeguard our investment and protect our interest,” he said.
Muzzammil explained that share prices at times might not reflect the true value of a company due to several reasons; namely financial climate, market sentiment and lack of trading volume. This is specifically for crude palm oil plantation companies, given the highly capital intensive nature of their business.
The relevant valuation metric that is accepted globally is enterprise value per planted area rather than share price, he said.
Muzzammil said Felda did not take the route of making a general offer through an open market as the price would go up and Felda might end up paying more for a smaller share without the opportunity for a due diligence.
He said the premium could also be explained by the scarcity value of EHP, where no other plantations of this large size was available for sale at this valuation.
This is the only opportunity for Felda and Malaysia or any foreign parties to acquire an Indonesian company with massive land bank, he said.