Unlike the era of the 1990s, thanks largely to 1993’s Super Bull Run, you can’t expect to make easy money at IPOs tables nowadays. During the good old days, making 100% profits via IPO was a normal story. Heck, you would probably get laughed at for trumpeting 100% profits. Even if you were very “Sui” (unlucky) for failure in getting even 1-lot (it was 1,000 shares then) in your IPO application, you still can make very handsome profits during the listing day. The fact that you just needed to call your remisier to (blindly) buy at whatever ask-price displayed on the screen and yet makes money shows how bullish the market was back then.
Today, you should make offering of “appreciation” to God, with fire-crackers and lion dance thrown in, if you can make even 10% profits on the listing day. OK, I was exaggerating but the fact that 3 out of 5 companies listed this year have lost between 4% and 20% of their market capitalisation value as at end-May, speaks volume about the risks of putting your hard-earned money in the local stock market during current challenging time. When everyone thought they could make a killing with Facebook Inc.’s (Nasdaq: FB, stock) IPO, the stock lost a whopping 29% from its IPO price of $38 a share as of yesterday’s closing.
Come June 28, Felda Global Ventures Holdings (FGVH) will be listed on the Bursa Malaysia (Malaysia Stock Exchange) with a market capitalization of RM16.599 billion based on IPO indicator price of RM4.55 a share. There would be a mind-boggling 3,648 million shares floating in the market. Actually FGVH is another animal and should perform differently compares to Facebook considering it is the third largest (by landbank) listed palm oil operator globally, if not for the fact that the company is tainted with truckloads of political elements attached to it.
For a start, the whole exercise of FGVH listing was rushed in as if a plague would be wiping out human civilization post-June listing date. When Isa Abdul, a person who was found guilty of money politic (a flowerish word for corruption) by its own party, UMNO, was made Felda Chairman, even though he wasn’t a KPF (Koperasi Permodalan Felda) member hence his membership was found to be “illegal” by the Malaysian Cooperative Societies Commission (MCCC), you can smell troubles miles away. It was simply an exercise to cash out from Felda by milking the ignorant 112,000 settlers’ tits to dry, before the coming general election.
Based on 1,208.9 million shares from shareholders and 980 million new shares offered to the public, the IPO will raise a combination of RM10 billion (based on retail offer price of RM4.55 a share). That’s a lot of money and anyone would not think twice about cashing out, not to mention such amount of money can buy hundreds of thousands of votes. However there’s something fishy about the IPO exercise when KPF, which owns 51% of Felda Holdings Berhad currently had been left out in the exercise. It was a valid argument from opposition as to the reason of setting up a “mysterious trust fund” to channel 20% of dividend from the IPO. The fact that the trust fund wasn’t mentioned in the IPO prospectus could spook investors further.
Maybe that was the reason why some state governments was made to provide irrevokable undertakings to subscribe to FGVH’s IPO shares, should there be no takers. It’s both strange and weird that a 51% shareholder (KPF) which represent the 112,000 settlers are not represented in FGVH post-listing. Heck, technically, KPF does not even own anything in crown jewel Felda Holdings Berhad as the biggest shareholder would then be FGVH with its 40% stake. It seems the IPO was designed to sell off KPF’s 51% stake and park the RM10 billion under FGVH which includes the mysterious trust fund.
State governments involved in irrevokable undertakings:
- Pahang State Government – 5% (182,407,575 shares)
- Sabah State Government – 5% (182,407,575 shares)
- Terengganu State Government – 0.28% (10,000,000 shares)
- Negeri Sembilan State Government – 0.16% (5,837,070 shares)
- Perak State Government – 0.40% (14,957,421 shares)
Post-listing, Felda settlers would only own 2.5% of the enlarged share capital, and without KPF representative, it is as good as a toothless tiger, provided the settlers could raise money to subscribe to the pink (or whatever colour) forms in the first place. Judging from how Felda settlers jumping in joy after received RM15,000 each in so-called windfall as if the country has just crowned the FIFA World Cup Champion, most probably they thought they need not pay a single sen to gain shares via pink form. The settlers may not realize it but the moment FGVH is listed, they have practically no say whatsoever as their lands are leased to FGVH for 99 years (lease begin from 1 Jan 2012).
Sure, based on the terms of the lease, FGVH must pay Felda RM248.5 million (or RM698.24 / hectare) annually together with a fixed percentage of FGVH’s plantations operating profit. But when you compare this to Boustead REIT lease of RM3,500 / hectare, the settlers were made suckers for such a cheap leasing rate. Now you understand why Isa Samad was chosen as the person to rip off Felda Holdings. When you can underpay the idiots by a whopping 400% and yet they applause what you did, it simply means you’re as smart as Albert Einstein, if not better (*grin*). Based on 91,203,787.5 or 2.5% shares to be shared equally amongst 112,000 settlers, each of them will be getting 814 shares – great deal.
On paper, Felda Holdings via FGVH is a cash-cow waiting to be milked, with cool revenue and profits. However as a potential investor, you should realize that about 53% of its plantations is old (over 21 years) and needs to be replanted, which means high cost in expenditure. Using Greenfield development cost as benchmark whereby a hectare requires about RM15,000 to replant, 53% of 355,864 hectares will translates into RM2.8 billion on replanting cost alone, spread over 5-years.
And do we have to tell you that crude palm oil prices have crashed 18% since it hit a 13 month high in April this year due to declining demand from China and India? Yes, it seems China and India’s economies are slowing down and that spells trouble for palm oil players who depends heavily on these two giants. The Eurozone debt crisis doesn’t help the situation either. Already the crude palm oil prices is expected to tumble to RM2,700 per ton in 2012, if we’re lucky. There’s also competitor next door – Indonesia – who just adjusted their palm oil export tax structure which gave Indonesia refiners bargaining power when procuring crude palm oil as well as lower export tax (yeah, they play dirty so what!).
Plantation companies in Malaysia also rely heavily on foreign workers, primarily from Indonesia. With this controversial FGVH IPO, you also learn the reason why foreigners are the kingmakers in this country so much so that the present government was caught rushing in granting them citizenship – not only these foreigners can be used to deliver crucial votes in the coming general election but also as cheap labour working at plantation sector. Can you imagine what will happen to the stock price if 84% of FGVH’s current foreign estate workers totalling 25,000 were to take to the street asking for better pay and benefits?
Now, should you try your luck on this IPO? Well, if you look at the players interested in the stock especially people like Chua Ma Yu, you may want to jump in as it is no-brainer. However you have no idea how fast this legendary investor can unload his chunk of shares on the listing day. FGVH will have huge floating shares so you should get ready for huge selling, just like what happened to Facebook, but in FGVH case it’s primarily due to political concern. If you’re not comfortable with the way FGVH is being listed, don’t bother because chances are you could get the stock cheaper post-listing, the same way Facebook stock price is suffering now.
Investors also do not fancy hanky-panky, what more with this hidden 20% trust fund. If the government chose to play God by bulldozing majority shareholder KPF (51%) to extinction, what warranty do new investors have that they would not be short changed considering they’re just minor shareholders? Many fund managers are bullish with Buy (silly, how can they recommend Sell instead?) and suggested target price of RM5.65, a price earning of 16 times Financial Year 2012’s EPS of 35.3 sen. Hence, just like Facebook, you can still make some pocket money, provided you can dispose it fast enough on the day of listing.
Don’t fall in love with the company. Sell it to realize the profit and wait for the major sell-off. There’s no harm waiting for the price to fluctuate and buy again at below IPO price, even though you’re a long term investor. If Najib administration needs more money for the general election, chances are the selling pressure will intensify further. And if this is the last rip-off from the present government to leave coffer dry, you’ve even more reason to follow the market maker and sell like crazy.
Some of the investors of FGVH:
- Louis Dreyfus Commodities Asia Pte. Ltd – 2.5%
- Quek Leng Chan
- Chua Ma Yu
- Permodalan Nasional Berhad
- Employee Provident Fund
- Qatar Holdings LLC
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