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Malaysia palm firm FGV's stake sale plan to Indonesia tycoons on hold: sources
July 5, 2017 / 11:06 AM / a month ago

Malaysia palm firm FGV's stake sale plan to Indonesia tycoons on hold: sources

KUALA LUMPUR (Reuters) - Talks to sell stakes in Felda Global Ventures Holdings Berhad (FGV) (FGVH.KL) to two Indonesian billionaires have been suspended due to a management crisis at the world's third biggest palm plantation group, sources close to the deal said.

Martua Sitorus and Peter Sondakh, two of Indonesia's richest men, were in advanced discussions with FGV and its controlling shareholder, Malaysian state-owned palm planter Federal Land Development Authority (Felda), to buy the equity stakes, the sources said.

But the talks have ground to a halt following a boardroom tussle and corruption claims at FGV that led to the CEO's suspension and the resignation of its chairman last month, the sources said on Wednesday.

"It's clear when you have the two top executives of a public listed company suspended, surely you wouldn't move beyond its daily operations," said a source with direct knowledge of the matter.

It was not immediately clear if or when talks on the stake sale will resume and if or when the CEO's suspension would end.

A deal could have boosted FGV's finances and given it a chance to reverse at least some of the 70 percent declines seen in its share price since its IPO in 2012.

The stalling of the potential deal is a setback for Malaysian Prime Minister Najib Razak who is racing against time to appease FGV's shareholders - a key vote base - before general elections that could be called as early as this year.

FGV's shareholders - a chunk of whom are small landholders called settlers - have been hit hard by the share drop, worsening financial performance of Felda and FGV and delayed payments.

An FGV spokesman said the company cannot comment on the matter. Sitorus' office did not immediately respond to a request for comment.

Satrio Tjai, managing director of Sondakh's Rajawali Group, said he had not heard about these discussions. The sources did not want to be named as they were not authorized to talk to the media.

DETAILS OF PLAN

Sitorus is the co-founder of Singapore-listed Wilmar International (WLIL.SI), the world's largest palm oil processor, while Sondakh controls plantation-to-mining conglomerate Rajawali.

Under the planned deal, FGV would first take over Indonesian palm plantation assets of Sitorus and Sondakh and pay for it through significant stakes in the enlarged FGV, the sources said.

Felda and Sitorus would hold about 25-30 percent each while Sondakh would own 16 percent.

Felda would also take back the Malaysian land it had leased to FGV before the latter's IPO in 2012, paying about 4 billion ringgit ($931.53 million) in cash, one of the sources said.

Eventually Sitorus will helm FGV, which at the completion of the deal would be a company with mostly Indonesian assets.

"FGV would essentially be upstream Indonesian assets," said a banking source familiar with the discussions.

According to the first source, the company is also open to others who may be interested in an FGV stake.

Sondakh, who has long-standing ties to Prime Minister Najib, had tried to sell to FGV a stake in his palm oil firm PT Eagle High Plantations Tbk (BWPT.JK) in June 2015, but the plan was scrapped after FGV shareholders blasted the deal as too expensive.

The Eagle High stake was eventually bought by another unit of Felda last year at a 95 percent premium.

Najib is keen to fix FGV, whose problems are hurting his image among key Malay voters. The settlers' communities account for nearly a quarter of all parliamentary seats.

"By conservative estimates, UMNO could lose at least 5 seats in Felda constituencies... A bigger UMNO loss - up to 10 seats - is entirely probable," said Gavin Browning, a Singapore-based analyst with political risk consultancy Eurasia Group, referring to Najib's United Malays National Organisation party.

Additional reporting by Cindy Silviana in JAKARTA; Writing by A.Ananthalakshmi; Editing by Muralikumar Anantharaman

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