Analysts not surprised by FGV’s asset divestment

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Key asset that is up for disposal is the Canadian crushing and refining plant.

Key asset that is up for disposal is the Canadian crushing and refining plant.

KUCHING: Analysts are generally not surprised by Felda Global Ventures Holdings Bhd’s (FGV) intention of selling its non-core assets. According to the research arm of TA Securities Holdings Bhd (TA Research), Bloomberg published an article recently based on an interview with FGV’s chief executive officer (CEO), Mohd Emir Mavani Abdullah.

TA Research noted the key highlights were that the group plans to raise more than RM1 billion by selling non-core assets and that FGV is also looking at options to monetise the group’s non-LLA plantation assets through an initial public offering (IPO), although it is still in a very early stage.

The research arm further noted that the other highlight was on the proposed acquisition of Eagle High Plantation (EHP) on which Emir said the purchase is an ‘unparalleled strategic fit’ because it gives FGV a large contiguous land bank in Indonesia as well as offers access to the Indonesian downstream, fertiliser and seedling markets.

On the non-core assets sale, TA Research was not surprised by this as the intention to sell the non-core assets have been well publicized in the past.

“The key asset that is up for disposal is the Canadian crushing and refining plant,” it said, adding that this subsidiary has been loss making since the unwinding of the joint venture (JV) with Bunge.

TA Research noted that in 1Q15, the downstream segment reported RM44 million pretax loss with about half of the amount accrues to the Canadian processing plant.

The research arm would view the disposal positively as it has been an earnings drag on FGV.

Moreover, TA Research noted that it will help to strengthen FGV’s balance sheet, especially given the significant leverage up required if the PT Eagle High Plantations (EHP) takeover materialises (net gearing will increase to 1.1-fold from 0.72-fold presently).
The research arm further noted that according to the Bloomberg article, the asset had attracted initial bids ranging between US$180 million to 250 million (RM684 million to RM950 million).

“Other non-core assets up for sale include the property, IT and travel arms,” it said.

On the other hand, the potential IPO of the non-LLA plantation assets was a surprise to TA Research.

The research arm recapped that non-LLA are plantation assets that are not part of the land leased by FGV from the parent company.

“It is also unclear whether the transportation and bulking business will be included in an IPO,” TA Research said.

The research arm noted that as at the end of 1Q15, non-LLA plantation land bank accounts about 15 per cent (excluding Golden Land) of FGV total planted land bank.

It further noted that management expect the non-LLA land bank to produce about one million tonnes of fresh fruit bunch (FFB) by 2016.

“That will put the spin-off unit as a mid-tier plantation company,” it said.

The research arm suspected this option could be explored in the long term as a deleveraging tool, if required.

On the acquisition of EHP, TA Research maintained its negative view.

“While there is upside from synergy (as Emir had said), the pricey valuations and the near term dilutive impact on earnings are our key concerns.

“Moreover, we have yet to see the group extracting significant synergy benefits from the acquisitions that have already been completed.”