Felda Global Ventures Holdings Bhd. (FGV), the world’s third-biggest oil palm planter, jumped more than 16 percent in its Kuala Lumpur debut, after raising $3.3 billion in the biggest initial public offering since Facebook (FB:US) Inc.
That was the best first day of all initial public offerings above $500 million globally this year, according to data compiled by Bloomberg. The stock surged to as high as 5.46 ringgit ($1.71), before paring gains to close at 5.30 ringgit.
“Foreign investors haven’t been allocated sufficient shares,” said Alan Richardson, who helps oversee about $87 billion as a money manager at Samsung Asset Management Co. in Singapore. “An over-demand situation is likely.”
Demand from institutions exceeded supply by more than 40 times during the IPO, Felda Chief Executive Officer Sabri Ahmad said in an interview on June 20. The plantations group priced the stock below the top of its indicative range, unlike Facebook which has slumped since its May debut.
State-controlled Felda could have received more than 4.55 ringgit per share from institutions, though decided not to after allocating 90 percent of the available stock to Malaysian subscribers, Sabri said. “We wanted to put something on the table for them to enjoy,” he said.
With a market capitalization of 19.3 billion ringgit, Felda will qualify to join the 30-member FTSE Bursa Malaysia KLCI Index. The benchmark closed 0.5 percent lower today.
Funds that track the gauge would be obliged to buy the shares in the open market if they failed to get allocation during the initial sale.
“People who didn’t get the shares want to,” said Abdul Jalil Abdul Rasheed, who helps manage $3 billion as chief executive officer of Aberdeen Islamic Asset Management Sdn. in Kuala Lumpur.
Malaysia has withstood a global stocks sell-off brought on by Europe’s debt crisis, which has seen at least $12.3 billion of first-time sales scrapped or delayed globally since the start of this year, according to data compiled by Bloomberg.
The KLCI index touched an intraday record this week, after foreign funds were net buyers of shares for an eighth straight month in May, according to the stock exchange’s website. Felda Global is ranked the equivalent of buy with an average price target of 5.53 ringgit by four brokerages surveyed by Bloomberg, including Public Investment Bank Bhd.
“The food business is quite resilient to recession,” said Sabri in Kuala Lumpur. “As long as China and India keep on buying oils and fats, the demand is there. The debt crisis shouldn’t have a big impact.”
State funds including Permodalan Nasional Bhd., Lembaga Tabung Haji and the Employees Provident Fund Board were among so-called cornerstone investors for its share sale.
“The strength of the Malaysian IPO market is that you have a lot of domestic liquidity, which ensures that real demand cannot fully be satisfied,” said Samsung Asset’s Richardson.
IHH Healthcare Bhd., Asia’s biggest hospital operator, has similarly signed up local pension funds among its 22 cornerstone investors, for more than 60 percent of its share sale in Kuala Lumpur next month. IHH plans to raise about 6.4 billion ringgit, two people familiar with the matter said June 15.
Felda, which also produces rubber and sugar, reported a 46 percent drop in profit to 192.2 million ringgit for the three months ended March 31. This was partly because of accounting changes after a business structure revamp, Chief Financial Officer Ahmad Tifli Mohd Talha said in a phone interview.
The company remains “quite positive” it can still achieve its full-year profit target this year, Sabri told reporters in Kuala Lumpur today, without providing an earnings forecast.
The Felda shares were priced at 14.2 times estimated full- year earnings, a person familiar with the matter said June 14. This compares with 14.7 times at local rival Sime Darby Bhd. (SIME), the world’s largest palm-oil company by acreage, and 9.9 times at Singapore’s Golden Agri-Resources Ltd., data compiled by Bloomberg show.
Facebook’s 28-year-old founder Mark Zuckerberg persuaded investors to pay about 107 times reported earnings (FB:US), a higher price-to-earnings multiple than almost every company in the Standard & Poor’s 500 index.
Felda “won’t tank, it won’t be like Facebook,” Lye Thim Loong, who helps manage $500 million at Libra Invest Bhd. in Kuala Lumpur and subscribed for the Malaysian company’s shares, said before the debut. “It’s not as expensive.”
Felda, the largest shareholder of sugar refiner MSM Malaysia Holdings Bhd. (MSM), has 355,864 hectares (879,359 acres) of leased or managed palm and rubber plantations in the Southeast Asian nation.
It also has land in Indonesia, as well as overseas palm oil refining businesses, soybean and canola-crushing operations and a U.S. oleochemicals plant, the prospectus shows.
“We want to be a global player,” Sabri said. The company intends to use part of its IPO’s proceeds to expand its palm oil upstream operations in Indonesia and venture into Africa. Cambodia and Myanmar are being targeted for rubber and sugar respectively, he said.
The group is part of the Federal Land Development Authority, a government agency formed in 1956 with World Bank funding to help steer the rural poor out of poverty by providing them with land to plant. Key to its creation was Abdul Razak Hussein, Malaysia’s second prime minister and father of current leader Najib Razak.
Najib, who must call elections by early next year, announced windfall one-off payments to plantation workers and their families, known as settlers, amounting to 1.69 billion ringgit on May 8. A trust will be set up to hold 20 percent of Felda shares for planters after the IPO so that they can reap dividends, he said.
“Political patronage will always be high as Felda has over 112,000 settlers who vote in many key rural constituencies,” Khor Yu Leng, an independent agribusiness analyst, said in an e- mail interview.
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