FGV’s proposed purchase of 37% of Eagle High Plantations is allowing the Rajawali Group to enjoy an estimated profit of US$328million in six months

Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 16th of June, 2015

FGV’s share price dropped from RM1.86 at yesterday morning’s opening bell to RM1.65 at the closing bell, a fall of 21 sen or a one day fall of 11% in FGV’s share price. The market was reacting negatively to FGV’s proposed purchase of a 37% stake in Indonesian palm oil company, Eagle High Plantations for US$679 million.

Eagle High Plantations was originally known as BW Plantation before it was acquired by the Rajawali Group at the end of 2014.[1] The Rajawali Group, which is controlled by Indonesian billionaire Peter Sondakh, gained control of BW Plantation by subscribing to a rights issue priced at Rp400 per share. Since the acquisition of BW Plantation, subsequently renamed Eagle High Plantations (EHP), by the Rajawali Group, the share price of EHP has been performing poorly, hitting a low of Rp245 per share on the 5th of April, 2015.

Hence, it must have caught the market by surprise when FGV made an offer to acquire 37% of EHP through a combination of cash and FGV shares from the Rajawali group which was valued at US$679 million or Rp775 per share. When this deal was announced on the 12th of June, 2015, EHP was at Rp450 per share on the Jakarta Stock Exchange.

The proposed acquisition by FGV would give the Rajawali group a profit of approximately US$328 million on the 11.664 billion shares of EHP (most of it likely acquired at Rp400 per share), which it would sell to FGV if the proposed deal is approved. This is a tidy sum indeed for the Rajawali group, which will succeed not only in making a tidy profit in 6 months but also still hold effective control of EHP after its share disposal to FGV.

Furthermore, even if FGV decides not to go through with the proposed acquisition, it would lose its deposit of US$174.5m (RM657.9m) which represents approximately 23% of the total value of the transaction. This deposit was considered high by a CIMB analyst report which noted that a regular sale and purchase agreement only requires a 10% deposit.

This proposed acquisition of EHP by FGV is a poor decision by the management as well as the board of directors of FGV. It stinks of the type of poor corporate governance that landed 1MDB in financial trouble, and it seems very likely that the shareholders of FGV which includes FELDA settlers as well as the members of the public (via shareholdings of KWAP, Tabung Haji and EPF) will have to pay for these poor decisions.

The Rajawali group nets a tidy profit while ordinary Malaysians will have to pay the price. Something is indeed very rotten in the state of FGV.

[1] http://www.thejakartapost.com/news/2014/11/29/bwpt-merge-with-rajawali-unit-after-rp-108t-rights-issue.html