– IPO driven by politics not economics
We reiterate our position that FELDA today is too politicized. Based on latest analysis, we believe that the IPO is being rushed for political reasons and is not based on fundamental economic merits of FGVH. We refer to the recent Wall Street Journal report on FGVH’s IPO, where concerns were raised about the profitability of FGVH due to its tree profile.
Generally a company will pursue a listing when it is in a strong position (to get maximum valuation) or when it is set to grow tremendously. FGVH is neither at its prime nor is it set for high growth. Instead the IPO prospectus reveals that it is in fact a struggling plantation concern.
At its most fundamental level, FGVH’s palm oil tree age profile reveals the board of directors’ unbelievable lack of attention on its tree profile management. A shocking 53% of the trees are old, 31% young and immature and only a dismal 16% at its prime. Imagine a company performing only at 16% of its true potential seeking an IPO.
As comparison, a healthy well managed plantation company will have an average tree profile of 7% old and 15% young and immature and 78% prime.
What the shocking tree profile means is FGVH will be stuck for at least 10 years before the majority of its plants become prime. So if you buy the shares today, you will have to wait at least 10 years before the company normalizes its planting profile and start to perform like a good plantation company should.
So, if FGVH is not ready to list because of its weak fundamentals, then why the rush to list?
FELDA and the government need to answer why they are so gung ho on the listing. Could the listing be by driven by politics by an over politicized board of directors? Is the prime motivation to list aimed at enriching bankers and advisors, the board of directors of FELDA and also to provide a windfall payout to settlers to buy political support? FGVH is set to be a USD3 billion IPO, the 2nd largest in the world this year and the bankers and advisors to the IPO could potentially make tens of millions of ringgit of fees.
We demand that FELDA and the government fully disclose the itemized fees to be received by the bankers and advisors as a result of this nonsensical listing.
WONG CHEN, CHAIRMAN, INVESTMENT & TRADE BUREAU, 16 MAY 2012
