High stakes for Najib in FGVH’s market debut

KUALA LUMPUR, June 28 — There will be much riding on the debut of FELDA Global Ventures Holdings (FGVH) on Bursa Malaysia today — the world’s second largest IPO this year — and it could either bolster or puncture the pride of the government and especially that of the prime minister’s whose father masterminded the land grant scheme over 50 years ago to uplift the country’s rural population.

An FGVH flop, like the much maligned Facebook IPO did last month, could spark rumblings of discontent among settlers and investors alike and present an opportunity for the federal opposition to capitalise on any disappointment among the strategic 112,000-strong Federal Land Development Authority (FELDA) settler vote bank.

File photo of workers collecting oil palm fruits at FELDA Sungai Tengi Selatan plantation in Sungai Tengi, 100km north of Kuala Lumpur. Shares in oil palm firm FGVH will make their trading debut on June 28, 2012. — Reuters pic

If the shares rise and stay above the IPO price of RM4.45 however, it could help bring about a crucial feel-good factor for the Najib administration among settlers and investors as well as burnish Kuala Lumpur’s emerging reputation as the region’s IPO hub.

Each of the FELDA landowners was offered 800 blue forms for FGVH’s IPO shares.

The run-up to the listing of the plantation giant was not a smooth one — it faced fierce resistance from the opposition, lawsuits from some settlers and a massive almost 50 per cent slide in first-quarter profits due largely to replanting expenses.

The shock announcement prompted analysts to take a closer look at FGVH, who noted its ageing oil palm trees which, at an average of 20 years, are not only well past prime but also older than other listed plantation groups which boast trees with an average age as low as five.

Crude palm oil prices (CPO) have also hit bottom recently although some expect prices to recover later this year if the El Nino weather phenomenon hits and impacts production.

A report by Amsterdam-based Profundo Economic Research also told investors to “avoid” FGVH due to an accumulation of environmental, social and governance risks that will result in “serious financial risks” for investors.

The research house said that FGVH does not have a strong sustainability record, with only three per cent of its landbank certified by RSPO (Roundtable On Sustainable Palm Oil) and that 50 per cent of IPO proceeds will be used to develop plantations in vulnerable areas in Africa, Indonesia and elsewhere.

It also claimed that Malaysia’s ruling political party Umno controls company management and lines up state-controlled investors “to inflate share demand.”

Profundo added that should Barisan Nasional (BN) lose the next general election to Pakatan Rakyat (PR), the latter might relook at the land lease agreement that transferred 355,864 hectares of plantation land which were previously managed by FELDA Holdings to the direct control of FGVH.

While shares of FGVH were oversubscribed, the first-quarter profit slump just days before its listing could rattle investor confidence, prompting them to question the group’s prospects.

FGVH’s sheer size and government linkages however could prove irresistible to investors.

A report by Dow Jones said that shares of FVGH are expected to rise at least 10 per cent today due to hefty demand from institutional investors seeking exposure to high dividends as well as the group’s potential blue-chip status.

MIDF Equities Research also said that FGVH was a potential component of the benchmark FBM KLCI index, thus making it a “must-have stock in every fund manager’s portfolios.”

The listing of the plantation giant — the world’s third largest — was first announced by Prime Minister Datuk Seri Najib Razak last year and was promised to be a “windfall” for the FELDA settlers, a traditional vote bank for Umno.

It was also seen as part of reforms by the Najib administration to divest government stakes in government-linked companies (GLCs) and boost private sector participation in the economy.

FGVH will raise about RM10 billion from its IPO and debut with a market capitalisation exceeding RM16 billion.

Cornerstone institutional investors include sovereign wealth fund Qatar LLC, Hong Kong’s Value Partners, AIA Group, EPF, PNB, Tan Sri Chua Ma Yu’s CMY Capital and Hong Leong Foundation.

FGVH’s IPO is the year’s second largest after Facebook’s US$16 billion (RM48 billion) IPO last month.

Apart from FGVH, Asia’s largest hospital operator Integrated Healthcare Holdings (IHH) is also planning an IPO on Bursa Malaysia that could raise as much as RM1.9 billion.

Bloomberg reported that as much as RM16 billion could be raised in Kuala Lumpur this year compared with US$1.4 billion (RM4.5 billion) in Hong Kong, the region’s traditional financial hub.