FGV’s business transformation process expected to remain on track

PETALING JAYA: Felda’s proposal to privatise FGV Holdings Bhd is not likely to disrupt the latter’s business transformation plan, according to analysts.

“It is in the best interest of Felda, for FGV to reach greater heights with their business transformation plan which has been doing well so far,” said an analyst who declined to be named.

The analyst pointed out that FGV has been making inroads into the value-added downstream sector as well as related sectors, such as integrated farming.

Should Felda feel compelled to downsize FGV operations, the analyst said, there are many loss-making divisions within the group that could be axed instead.

Sunway University Business School professor of economics Dr Yeah Kim Leng pointed out that Felda’s focus has largely been in the upstream oil palm plantation activities which has lifted thousands of rural households and smallholders out of poverty since its inception, while FGV’s downstream expansion is an appropriate response to reduce dependency on a single crop, tap into new opportunity and contribute to a higher investment activities in the country.

Given the heightened government presence in certain segments resulting from a successful takeover, which might crowd out small businesses, effectively reducing private sector dynamism and entrepreneurship, he recommended that the two entities focus on their core competencies and purposes, nurturing entrepreneurs and startups in the sectors instead of direct involvement.

“In this manner, it will help to unleash the forces of private sector efficiency, competitiveness, and incentives-compatible market-based systems’” he told SunBiz.

As part of the group’s transformation plan, it launched an integrated farming blueprint in 2019, which focuses on the development contract farming schemes for cash crops like rice; further expansion of its animal feed business via research & development as well as its venture into dairy farming via the acquisition of Red Agri Sdn Bhd.

Previously, FGV group CEO Datuk Haris Fadzilah Hassan projected that the integrated farming business will generate 15% of its earnings before interest, tax, depreciation and amortisation (ebitda) margin by 2023 with an estimated revenue of RM59-60 million.

With regard to some shareholders who appear to be holding out on accepting the offer, the analyst ventured that they are likely to be those who subscribed in the IPO exercise at the offer price of RM4.55 a share.

“Given the huge gulf between that and Felda’s offer price of RM1.30 per share, these shareholders are reluctant to accept the paper loss. Felda might need to negotiate with the shareholders to achieve the 90%-stake threshold to take the group private, but it is unlikely that it will increase its offer price.”

According to a media report, the shareholders which have yet to give up their stakes include the Pahang and Sabah state governments, the Employees Provident Fund and Permodalan Nasional Bhd.

As at Feb 10, Felda and parties acting in concert have increased their total holdings in FGV to 2.62 billion shares, equivalent to a 71.95% stake. Felda meanwhile has extended the closing date for acceptance of its takeover offer from Feb 16 to March 2.

Based on the record of depositors as of Feb 4, FGV’s public shareholding spread has fallen to 23.93%, which does not meet Bursa Main Market’s Listing Requirements minimum public shareholding spread requirement of 25%.

When contacted by SunBiz, Felda declined to comment on its plans post-acquisition and the rationale behind the closing date extension, as it could not get through the necessary protocols for queries relating to the offer.

However, it was previously reported that part of Felda’s restucturing could include the termination of a land lease agreement involving Felda-owned estates totalling 350,733 hectares that were leased to FGV for 99 years beginning from Nov 1, 2011.

The expected compensation from the termination may range between RM3.5 billion and RM4.3 billion based on internal assessments, but Haris has been quoted saying FGV has yet to hear officially on the matter.

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