Felda said to mull price cut for $959 million Indonesia deal

The Felda Global Ventures Holdings Bhd. headquarters stands in Kuala Lumpur, Malaysia.
The Felda Global Ventures Holdings Bhd. headquarters stands in Kuala Lumpur, Malaysia. PHOTO: BLOOMBERG

KUALA LUMPUR (BLOOMBERG) - Felda Global Ventures Holdings Bhd., the world's biggest crude palm oil producer, is considering seeking revised terms for its US$680 million (S$958.9 million) deal to buy a stake in PT Eagle High Plantations, people with knowledge of the matter said.

Felda may ask for a lower price to take into account issues discovered during due diligence on the Indonesian company, two of the people said, asking not to be identified as the information is private.

The two companies reached a preliminary agreement in June and said they plan to announce a final pact by mid-August, a deadline that has since been extended to Oct. 31. Felda said Aug. 14 it had "substantially completed" due diligence and was in the process of negotiating the terms of the definitive documentation.

Felda shares rose as much as 4.9 per cent in Kuala Lumpur trading Wednesday, before closing unchanged at 1.22 ringgit. The benchmark FTSE Bursa Malaysia KLCI Index fell 1.2 per cent.

Eagle High dropped 1.2 per cent Wednesday, the first decline in a week, compared with a 0.3 per cent slide in Jakarta's benchmark gauge. It has lost 43 per cent since the initial deal was announced, while crude palm oil has declined 13 per cent on concerns slowing Chinese growth will hinder other emerging economies. The Indonesian company currently owns about 425,000 hectares (1.05 million acres) of land, of which 152,000 hectares have been planted, according to a June filing.

Felda said June 12 it planned to buy 37 per cent of Eagle High from Indonesian conglomerate Rajawali Group for US$680 million in cash and shares. That implies an enterprise value of about $17,400 per hectare of land, compared with the $25,900 that Sime Darby Bhd. paid for New Britain Palm Oil Ltd. in March, Felda Chief Executive Officer Mohd Emir Mavani Abdullah said in a July interview.

Employees Provident Fund, Malaysia's biggest pension fund manager, is concerned about the valuation Felda is paying, the official Bernama news agency reported in June, citing the fund's Chief Executive Officer Shahril Ridza Ridzuan.

Felda said in an e-mailed statement the deal is "still in process for the time being" and the final report on due diligence will be announced at the company's upcoming shareholder meeting. Darjoto Setyawan, managing director of Rajawali Group, didn't answer an e-mail and call to his mobile phone seeking comment. Eagle High Corporate Secretary Rudy Suhendra said by phone he wasn't in a position to comment, as the deal is being done by the parent company.

Felda, which manages 450,000 hectares of land in Malaysia and Indonesia, has lost nearly three-quarters of its market value since its June 2012 initial public offering. Its second- quarter net income fell 70 percent to 46.1 million ringgit ($11 million) due to lower sale prices for its crude palm oil.