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Palm price dip mars Asian Plantations sale to FGV

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Felda Global Ventures, the palm oil giant aiming to become one of the world's top 10 agribusinesses, emerged as the winner of the auction for Asian Plantations, whose sale price reflected the depressed state of sector valuations.

Malaysia-based Felda Global Ventures, the commercial arm of the Felda group which is the world's largest crude palm oil producer, said it had agreed to pay £120m ($199m) for Asian Plantations, which in March revealed it was "in discussions with a number of parties".

The deal "complements" a strategy by Felda Global Ventures to expand further geographically, into different crops, and operationally, with an aim to expand in palm oil both in production and processing.

"We are relentless in our pursuit to be part of the world's top 10 agribusiness players, and a leader in the sectors of palm oil, rubber and sugar – from planting to processing, logistics to exports by 2020," said Mohd Emir Mavani Abdullah, the group's chief executive.

Felda Global Ventures, or FGV, has allocated some half of its 4.5bn ringgit proceeds from its listing in 2012, equivalent to $1.4bn at current exchange rates, to "strategic expansion" of its palm oil production business.

Quest for land

For Asian Plantations, the deal offers a payday on the group's work to, as a smaller and more agile operator, piece together through a series of deals a 24,622-hectare estate in Sarawak, Malaysia where fresh plantation land is much prized and hard to find.

Indeed, the difficulty of acquiring fresh land in Indonesia and, in particular, Malaysia, the top two palm oil producing countries, has driven many operators to invest in other regions, notably Africa, in the narrow equatorial band in which oil palm trees can grow.

FGV said that the deal would also allow it to reap synergies including "sharing of common resources" and doubling the productivity of the Asian Plantations mill, although it said it had "no plans" to lay-off staff at the acquired company, or make "major changes" there.

Timing issues

However, the price being paid by Felda, equivalent to 220p per share, offers little premium to Asian Plantations shareholders, being 3.5% above the closing price last night, and 5.1% above the average of the past year.

The valuation reflected in part Asian Plantations' status as a part-developed project, with much of its land - some 8,000 hectares as of the end of last year - still undeveloped, said Doug Hawkins at London broker Hardman & Co.

"As a more fully planted project, it would have attracted a higher bid," he said.

Furthermore, the offer comes at a time of depressed palm oil prices, with Kuala Lumpur futures touching 1,926 ringgit a tonne on Friday, the lowest since March 2009.

"It really is the low point in the cycle," Mr Hawkins told

"Changes in these factors would have seen an improvement in price formation."

As a multiple of plantation land Asian Plantations is, once $140m of debt is factored in, selling for $19,100 per hectare, "in line with current Malaysian sector values".

Market reaction

Indeed, while Asian Plantations is selling out at a share price well below the 257p that the stock reached in March, after takeover news was revealed, Felda shares too have dropped some 15% since then.

Felda stock on Friday closed down 2.8% at 3.82 ringgit, their weakest close since listing in June 2012.

Asian Plantations shares were 1.2% higher at 211.4p in London.


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