would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc.. 
Home
The World's Next Big IPO
A $3.2 Billion Offering Taps Demand for Food and Cosmetics
Article
Video
Stock Quotes
Comments (9)
MORE IN BUSINESS »
smaller
Larger
By NISHA GOPALAN in Hong Kong and JASON NG in Kuala Lumpur, Malaysia
Malaysian palm-oil producer Felda Global plans to raise $3.2 billion this month in what's likely to be this year's second-biggest IPO. Leslie Josephs reports on Markets Hub. Photo: Reuters.
Everyone's heard about this year's biggest initial public offering, Facebook Inc. FB +0.99% Fewer people have heard of the IPO that's likely to be the world's second-largest this year: a $3.2 billion deal involving a Malaysian government-owned palm-oil business.
The listing of Felda Global Ventures Holdings Bhd. aims to create a new global powerhouse in the lucrative business of palm oil, an ingredient in a wide range of goods, including lipstick, potato chips and biodiesel fuel. Palm-oil demand rose an average of 7.5% a year between 1991 and 2011, according to consulting firm Frost & Sullivan, and is expected to keep on climbing as incomes rise in places like China and demand for alternative fuels increases.
The deal, which is expected to price Wednesday, also could help put Malaysia more firmly on the global investment map as the Southeast Asian country tries to liberalize its economy to compete more effectively with China and other neighbors. Malaysia once was the world's biggest palm-oil producer, but it lost that title in recent years as Indonesia and parts of Africa and Latin America expanded plantations. Malaysian leaders hope a successful listing for Felda would help revitalize its operations and fund expansion of what is already the world's third-largest palm-oil company in terms of acreage, behind Malaysia's Sime Darby Bhd., 4197.KU 0.00% and Indonesia's Golden Agri-Resources Ltd.
Felda said its net rose 1.1% last year to 942.18 million ringgit ($295.8 million) as revenue increased 29% to 7.47 billion ringgit.
Demand is more than several times what is being sold, with the bulk of the offers at the top end of the price range of four ringgit to 4.65 ringgit ($1.26 to $1.46) a share, people familiar with the situation said. If an overallotment option is exercised, Felda could raise as much as $3.4 billion for the government, which would hold 37% of the plantation operator after the planned June 28 listing on the Malaysian Stock Exchange.
Felda IPO Attracts $15 billion in Orders
The outlook for Big Palm Oil and Felda is far from certain, though. Palm oil faces attacks from environmentalists who believe production of the commodity contributes to deforestation. Nestlé SA NESN.VX +0.09% and Unilever UL +0.96% —which use palm oil for Kit Kat candy bars, Dove soap and other products—have been the target of intense campaigns from activists to stop buying the oil.
Palm-oil prices have also been falling lately, largely because of slowing economic growth in China and worries about Europe's debt woes. The Malaysian board spot price is around 3,000 ringgit a ton, down from 3,500 ringgit at the start of the year, though many experts remain bullish long term.
Felda has issues of its own, including a history of lower yields than many of its competitors. Its trees are older than the industry average, which contributes to lower yields. The average age of Felda's plantations is around 20 years, compared with 12 for Golden Agri-Resources.
"Obviously, there is a lot of excitement because it's considered a biggie, and the government has been talking about the IPO," said Choo Swee Kee, chief investment officer at asset-management firm TA Investment Management Bhd. He said that with the high price 15 times projected 2012 earnings, Felda is cheaper than Sime Darby's 18 times. "But if you look closer, there is some concern especially that a huge percentage of the trees is past prime, which may affect short-term growth. Productivity is also lower than the big boys."
Some critics have questioned whether some of the money Felda is raising is an effort to win farmers' votes in Malaysia, which is gearing up for a national election by next spring. Just before Felda began taking orders from international investors in recent weeks, Malaysian Prime Minister Najib Razak said Felda farmers—roughly 120,000 households—would get a cash windfall amounting to 17 times their monthly minimum wage. Staff at Felda and its parent body, Malaysia's Federal Land Development Authority, are set to get salary increases and bonuses.
Enlarge Image
"I think Najib is trying to create a feel-good factor that he is delivering, he is handing out cash, to time it with the election," said Rafizi Ramli, a strategy director for the opposition Parti Keadilan Rakyat, or People's Justice Party, in Malaysia. As the company puts money into new trees and waits for them to mature, "the share price will go down, there will be quite a big paper loss," especially if commodity prices fall, he said.
Government officials said winning votes wasn't part of the strategy. The listing is part of an "ongoing divestment of state-owned assets" and will "increase transparency and further improve corporate governance within the company and enhance the lives" of farmers, a government spokesman said in a written statement. Felda executives didn't respond to a request for comment.
Felda has attracted $1 billion in cornerstone investing pledges from 12 parties, including the Qatar Investment Authority, Hong Kong insurance company AIA Group Ltd., 1299.HK -0.39% and four state-run funds. The cornerstone investors promised to hold their shares for six months after the listing to assuage other investors concerned that the shares would fall immediately after the IPO. One cornerstone investor said that beyond being a must-have for any commodities funds or funds betting on the region's growth, his firm liked hedges against inflation, such as agricultural commodities like palm oil.
Other investors like palm-oil companies because they can generate lots of cash. Some palm-oil players have used that money to diversify into real estate. Sime Darby is teaming up with property company SP Setia Bhd. 8664.KU 0.00% to acquire and redevelop London's Battersea Power Station for £400 million, or around $620 million. The iconic station was closed in the 1980s but became famous after being featured on Pink Floyd album covers.
Created in the 1950s as part of a movement that gave farmers their own plantations, the Federal Land Development Authority has played a central role in Malaysia's economy and helped reduce rural poverty. Felda was established in 2007 to be the agency's commercial arm, including making investments overseas.
Felda now has 350,000 hectares (865,000 acres) of plantation under management. The company also is involved in milling, refining and marketing palm fruits from 500,000 hectares (1.25 million acres) owned by small-scale Malaysian farmers.
One idea behind the IPO is to raise cash to help Felda invest in fertilizer and irrigation to boost production, as well as to plant new trees. The offering also could give Felda management money to expand elsewhere, since most of the available land for palm oil in Malaysia is used.
—Celine Fernandez in Kuala Lumpur contributed to this article.
Write to Nisha Gopalan at nisha.gopalan@dowjones.com and Jason Ng at jason.ng@wsj.com
A version of this article appeared June 12, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: The World's Next Big IPO.
A $3.2 Billion Offering Taps Demand for Food and Cosmetics
Article
Video
Stock Quotes
Comments (9)
MORE IN BUSINESS »
smaller
Larger
By NISHA GOPALAN in Hong Kong and JASON NG in Kuala Lumpur, Malaysia
Malaysian palm-oil producer Felda Global plans to raise $3.2 billion this month in what's likely to be this year's second-biggest IPO. Leslie Josephs reports on Markets Hub. Photo: Reuters.
Everyone's heard about this year's biggest initial public offering, Facebook Inc. FB +0.99% Fewer people have heard of the IPO that's likely to be the world's second-largest this year: a $3.2 billion deal involving a Malaysian government-owned palm-oil business.
The listing of Felda Global Ventures Holdings Bhd. aims to create a new global powerhouse in the lucrative business of palm oil, an ingredient in a wide range of goods, including lipstick, potato chips and biodiesel fuel. Palm-oil demand rose an average of 7.5% a year between 1991 and 2011, according to consulting firm Frost & Sullivan, and is expected to keep on climbing as incomes rise in places like China and demand for alternative fuels increases.
The deal, which is expected to price Wednesday, also could help put Malaysia more firmly on the global investment map as the Southeast Asian country tries to liberalize its economy to compete more effectively with China and other neighbors. Malaysia once was the world's biggest palm-oil producer, but it lost that title in recent years as Indonesia and parts of Africa and Latin America expanded plantations. Malaysian leaders hope a successful listing for Felda would help revitalize its operations and fund expansion of what is already the world's third-largest palm-oil company in terms of acreage, behind Malaysia's Sime Darby Bhd., 4197.KU 0.00% and Indonesia's Golden Agri-Resources Ltd.
Felda said its net rose 1.1% last year to 942.18 million ringgit ($295.8 million) as revenue increased 29% to 7.47 billion ringgit.
Demand is more than several times what is being sold, with the bulk of the offers at the top end of the price range of four ringgit to 4.65 ringgit ($1.26 to $1.46) a share, people familiar with the situation said. If an overallotment option is exercised, Felda could raise as much as $3.4 billion for the government, which would hold 37% of the plantation operator after the planned June 28 listing on the Malaysian Stock Exchange.
Felda IPO Attracts $15 billion in Orders
The outlook for Big Palm Oil and Felda is far from certain, though. Palm oil faces attacks from environmentalists who believe production of the commodity contributes to deforestation. Nestlé SA NESN.VX +0.09% and Unilever UL +0.96% —which use palm oil for Kit Kat candy bars, Dove soap and other products—have been the target of intense campaigns from activists to stop buying the oil.
Palm-oil prices have also been falling lately, largely because of slowing economic growth in China and worries about Europe's debt woes. The Malaysian board spot price is around 3,000 ringgit a ton, down from 3,500 ringgit at the start of the year, though many experts remain bullish long term.
Felda has issues of its own, including a history of lower yields than many of its competitors. Its trees are older than the industry average, which contributes to lower yields. The average age of Felda's plantations is around 20 years, compared with 12 for Golden Agri-Resources.
"Obviously, there is a lot of excitement because it's considered a biggie, and the government has been talking about the IPO," said Choo Swee Kee, chief investment officer at asset-management firm TA Investment Management Bhd. He said that with the high price 15 times projected 2012 earnings, Felda is cheaper than Sime Darby's 18 times. "But if you look closer, there is some concern especially that a huge percentage of the trees is past prime, which may affect short-term growth. Productivity is also lower than the big boys."
Some critics have questioned whether some of the money Felda is raising is an effort to win farmers' votes in Malaysia, which is gearing up for a national election by next spring. Just before Felda began taking orders from international investors in recent weeks, Malaysian Prime Minister Najib Razak said Felda farmers—roughly 120,000 households—would get a cash windfall amounting to 17 times their monthly minimum wage. Staff at Felda and its parent body, Malaysia's Federal Land Development Authority, are set to get salary increases and bonuses.
Enlarge Image
"I think Najib is trying to create a feel-good factor that he is delivering, he is handing out cash, to time it with the election," said Rafizi Ramli, a strategy director for the opposition Parti Keadilan Rakyat, or People's Justice Party, in Malaysia. As the company puts money into new trees and waits for them to mature, "the share price will go down, there will be quite a big paper loss," especially if commodity prices fall, he said.
Government officials said winning votes wasn't part of the strategy. The listing is part of an "ongoing divestment of state-owned assets" and will "increase transparency and further improve corporate governance within the company and enhance the lives" of farmers, a government spokesman said in a written statement. Felda executives didn't respond to a request for comment.
Felda has attracted $1 billion in cornerstone investing pledges from 12 parties, including the Qatar Investment Authority, Hong Kong insurance company AIA Group Ltd., 1299.HK -0.39% and four state-run funds. The cornerstone investors promised to hold their shares for six months after the listing to assuage other investors concerned that the shares would fall immediately after the IPO. One cornerstone investor said that beyond being a must-have for any commodities funds or funds betting on the region's growth, his firm liked hedges against inflation, such as agricultural commodities like palm oil.
Other investors like palm-oil companies because they can generate lots of cash. Some palm-oil players have used that money to diversify into real estate. Sime Darby is teaming up with property company SP Setia Bhd. 8664.KU 0.00% to acquire and redevelop London's Battersea Power Station for £400 million, or around $620 million. The iconic station was closed in the 1980s but became famous after being featured on Pink Floyd album covers.
Created in the 1950s as part of a movement that gave farmers their own plantations, the Federal Land Development Authority has played a central role in Malaysia's economy and helped reduce rural poverty. Felda was established in 2007 to be the agency's commercial arm, including making investments overseas.
Felda now has 350,000 hectares (865,000 acres) of plantation under management. The company also is involved in milling, refining and marketing palm fruits from 500,000 hectares (1.25 million acres) owned by small-scale Malaysian farmers.
One idea behind the IPO is to raise cash to help Felda invest in fertilizer and irrigation to boost production, as well as to plant new trees. The offering also could give Felda management money to expand elsewhere, since most of the available land for palm oil in Malaysia is used.
—Celine Fernandez in Kuala Lumpur contributed to this article.
Write to Nisha Gopalan at nisha.gopalan@dowjones.com and Jason Ng at jason.ng@wsj.com
A version of this article appeared June 12, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: The World's Next Big IPO.
