Felda Global listing: over RM600 million in profits pocketed so far?

Felda Global listing was "designed to succeed," over RM600 million in profits pocketed so far? Khor Reports.

Thank you for your overwhelming interest in our report on "Felda Global - a socio-political perspective" issued back in May. We were interviewed by Al Jazeera, Bloomberg and Reuters on the mega-listing, quoted in the Financial Times, The Edge Malaysia and also
cited in some international reports.

I've had some queries and I thought more of you may be wondering what's been happening with share trading in Felda Global so far. It's about a month and a half since the listing on 28 June. I've compiled some statistics on price and volumes traded to give a picture of what is the value of shares traded and how much profits may have been made in this so-called "designed to succeed" listing; it was the 2nd largest in the world after Facebook.

Data briefing and analysis paper issued by Khor Reports on 16 August 2012. Please contact us for a copy.

Felda Global leaps to "target" and 12% cash-in? (correction)

Khor Reports notes and comments: 

The opening push on Felda Global took the stock to RM5.46, a whisker below the RM5.50-6.00 range that market experts mentioned over a month ago to Khor Reports as the “hoped for” target; as we reported in “FELDA SETTLERS & THE FELDA GLOBAL IPO – a socio‐political perspective” dated 22 May 2012. 

Felda Global's shares closed the day at RM5.30, for a gain of 19% on the RM4.45 per share price for the public (institutions paid RM4.55)#. At this price, its earnings valuation is 15.7x, compared to 17.5x for KL Kepong, 14.4x for Sime Darby and 9.5x for Golden Agri. 

On a day when RM2.8 billion worth of securities were traded on Bursa Malaysia, RM1.5 billion was in the plantation sector. Felda Global was enjoying its debut, and it generated a huge value traded of about RM1.4 billion, or half of the Malaysian bourse's activity. It's not yet part of the FBM KLCI index of 30 stocks@, but it is expected to enter in the future. Among the largest Malaysian plantation stocks, Felda Global's RM19.3 billion market capitalization currently puts it behind KL Kepong with RM24.5 billion, but ahead of PPB Group (which has a key stake in Wilmar International) with RM18.8 billion.

Holders of shares from the offer for sale and the public issue will be sitting pretty with gains in excess of RM1.4 billion today, with about 12% trading their holdings on the first day, locking in gains of some RM170 million.

However, a Reuters news article raises questions about how the shares in Felda Global were allocated. It quotes: "This Felda IPO is an embarrassment," said an official with a Malaysian bank-backed fund management firm. "About 23 percent of the book was allocated to 'friends and family', all at the expense of legitimate investors with potential synergies."  

The share allocation by Felda Global is summarised in its IPO prospectus in the table below, but there is little information yet on total shares allocated to key executives and details of major shareholders.

 @ http://www.ftse.com/objects/csv_to_table.jsp?infoCode=bm1c&theseFilters=&csvAll=&theseColumns=MSwyLDMsMjA=&theseTitles=&tableTitle=FTSE%20Bursa%20Malaysia%20KLCI&dl=&p_encoded=1
#Correction at 11.20am on 29 June 2012, of 2nd paragraph on retail and institutional price, so that the gain is 19% not 16.5% on retail IPO price.

Some news reports:

The Edge Malaysia: "FGV is the third largest planter in the world after Sime Darby and Singapore-listed Golden Agri-Resources Ltd. As a yardstick, Sime is currently trading at an average of roughly 14.4 times estimated earnings for 2012/13, and Golden Agri at 63 Singapore cents is valued at 9.5 times estimated earnings for 2012 and and 8.8 times for 2013."  http://www.theedgemalaysia.com/business-news/216198-fgvh-fails-to-sustain-debut-momentum-.html


"The strong debut beat market expectations of a first day pop of 10 percent and brushed aside, for now, a widely flagged 36 percent drop in Felda Global's first-quarter profit to 223.2 million ringgit ($70 million) that unnerved some investors."

"To keep the farmers happy, government-linked funds and the domestic pension fund, which accounted for part of the institutional tranche, made a rush for the stock during the book-building process."

"This Felda IPO is an embarrassment," said an official with a Malaysian bank-backed fund management firm. "About 23 percent of the book was allocated to 'friends and family', all at the expense of legitimate investors with potential synergies."

Reuters news feature, "Malaysia's Felda surges 20 percent in debut of world's No.2 IPO," http://www.reuters.com/article/2012/06/28/us-malaysia-felda-ipo-idUSBRE85R07S20120628

Felda Global saved major embarrassment over Dreyfus?

Khor Reports notes & comment: 

Last minute negotiations seem to save Felda Global from serious embarrassment, as it doesn't lose one of its (if not "the" most) prominent strategic investors - Louis Dreyfus Commodities. 

However, from an initial offer of 5% to a final take-up of a 0.5% stake (a 90% reduction), as widely reported in newspapers, this seems cold comfort. Thus, 10% of what was initially offered was finally done, and apparently well past the expected cut-off date. Felda Global says that the stake was reduced because of high IPO demand. 

Industry commentators contrast this 0.5% stake with fellow global commodity giant, Archer Daniels Midland's (ADM) 16.4% interest in Wilmar@. Despite the low figure, the 0.5% stake is still touted as a "strategic investment."

On 21 June, the FT notes: "The involvement of Dreyfus as a strategic investor was widely seen as a key element of the biggest IPO since Facebook’s stock market listing last month...“It’s [the Dreyfus involvement] something that’s been pretty prominently talked about as a big ticket item and it’s an embarrassment. This was something that was meant to be a key part of the IPO,” a third person said. “There is a lot of tension and heated tempers right now.”...."  

A strategic partnership is apparently also now in place, although details were not disclosed. It is likely that Louis Dreyfus Commodities sought to market Felda Global's palm oil; but we hear from industry sources that Felda Global may not have been entirely keen to outsource its marketing to third parties.

It would have been interesting to be the proverbial "fly on the wall" when Felda Global and Louis Dreyfus thrashed out the latest strategic investment and strategic partnership. Did Felda Global have to offer better terms to Louis Dreyfus to lure them back, after news reports that its expected stake was given out to others? Was an even better, lower effective price, given to the commodity company?
News articles:

@"The Company has a 16.4% ownership interest in Wilmar International Limited (Wilmar), a Singapore publicly listed company. Wilmar, a leading agribusiness group in Asia, is engaged in the businesses of oil palm cultivation, oilseeds crushing, edible oils refining, sugar, consumer pack edible oils processing and merchandising, specialty fats, oleo chemicals, biodiesel, fertilizers and soy protein manufacturing, rice and flour milling, and grains merchandising...." 


What do Felda settlers now think of the IPO?

Khor Reports notes and comments: 

I’ve been getting ad hoc feedback from on-the-ground politicians, journalists and locals who have been visiting Felda settlements. There are consistent reports that the Felda settlers are expressing dissatisfaction with a) the RM15,000 bonus payout and b) the 800 shares for which they can subscribe in the Felda Global IPO;  they feel they ought to have gotten more. Also, there is a fundamental question about whether Felda should be about new settlers again.

The RM15,000 bonus is causing family squabbles?

The RM15,000 is paid out in three tranches. The first RM5,000 has been paid to the Felda settler - the male head of the household. Apparently, this has generated much friction and strife within the family. The children of these settlers fear that their RM5,000 portion may not be paid, therefore, they are asking their father to distribute to them from his share now. This is a lot of squabbling, as a Felda settler family may 5 or more children, and therefore 7 or more family members (excluding grand-children). This leaves little on a per head basis, if shared immediately. Moreover, we also hear stories that the male family head may have used up the money within a week - in settlement of outstanding debts (creditors were clamouring, knowing about the payout!) and/or in celebrations.

The second RM5,000 tranche to be paid to the wife on the 7th June, has created strife for those with more than one wife. The administration of PM Najib had to intervene on the matter, to say that the payment would be divided equally among all such claimants.

A date for the payment of the third tranche, due to the children of the Felda settler, has not yet been announced. This has caused some uncertainty, and suspicion that it is contingent on general election voting results.

Bottom line: The RM15,000 windfall seems to  insufficient for the Felda settler family size, and it has created unwanted and unforeseen family disputes.

An uneven and politicized share allocation?

The Felda settlers may be increasingly aware that so much more of the "IPO goodies" in terms of share allocation tranche, is widely thought to be directed mostly toward wealthy Bumiputeras, many of whom would be UMNO supporters. The "MITI investors" tranche is viewed by the market in this manner. 

     MITI investors (wealthy Malays likely to support UMNO??): 419.5 million shares
     Felda employees & persons who have contributed: 109.4 million shares
     Felda settlers: 91.2 million shares

New settlers?

Moreover, some Felda settlers suggest that the commercial plantation lands should be given out to new settlers instead of being leased out to Felda Global.

Ideally, an independent sample survey of Felda settler opinions should be conducted. The consistency of these ad hoc findings raises important questions on the likely outcomes of the Felda Global IPO-related bonuses to the Felda settler families. Will these bonuses backfire to some extent, strengthen support or gain more votes in Felda-related constituencies for the next Malaysia general election for the ruling UMNO/BN coalition?

Conclusion: It seems that the pre-electoral goodies offered by the administration of PM Najib to the Felda settlers, from the Felda Global IPO, might be going a bit "flat". 

Felda Global strategic investor woes? (updated)

The Felda Global IPO is next week on 28th June 2012, but at the last minute a pall is cast on the listing by troubling news reports that its strategic partner Louis Dreyfus, a global commodity power house, is pulling out as a strategic investor. The commodity giant was initially offered a 5% stake, but later it was expected to take 2.5%.

News articles:

Khor Reports comments: 

We heard rumours of a possible Louis Dreyfus pullout at the end of last week, and the news was broken by The Edge Malaysia on Monday. The strategic partnership may still proceed, but the investment stake seems to be in doubt.

It is unfortunate that Felda Global had earlier touted Cargill and Bunge as possible investors and failed to secure either. Worse now, and well past the company’s cut-off date of 13 June for book building, it seems that Louis Dreyfus and Felda Global are still in negotiation and neither has yet to come out to categorically and convincingly deny the news reports of a pullout. 

The industry chatter was that Dreyfus might want to aggressively expand its palm oil physical trade presence, and would be keen to invest, while the others were ambivalent. This eleventh hour uncertainty over a strategic investor, a commodity powerhouse, could add a serious pall to the upcoming IPO. 

Felda Global has tried to calm the market by reiterating that it has many other strategic investors and that the over subscription for its shares is vast. However, many market players and commentators openly express doubts on the high figures reported. Furthermore, none of the other strategic investors have the clout and credibility of catching one such as Louis Dreyfus. 

The commodity giants are already invested in the palm oil trade. These include ADM which has a 15% strategic stake in Wilmar. Bunge and Cargill have palm businesses via Tiga Pilar Plantations and the Cargill-Temasek joint venture, respectively.Louis Dreyfus has a 50% stake in a bulking installation in Kalimantan with Kencana Agri. It also has an upstream presence via a green-field site on which planting operations started in late 2008, and whose grassland areas will only be planted.

Updated 21 June, 9.25pm for commodity giants palm interests.

Today's news report says that Louis Dreyfus is not a strategic investor at this point, and its stake has been "snapped up" by others.