One IPO bites the dust, while plans for an even bigger one are dusted off.
Hours after Graff Diamonds, purveyor of high-end jewellery, pulled its $1bn IPO from the Hong Kong market, Malaysia’s prime minister was unveiling the prospectus for a blockbuster 10.2bn ringgit ($3.2bn) on Bursa Malaysia. This time the issuer is the biggest company you’ve never heard of: Felda, one of the world’s largest palm oil producers.
With 19,000 employees and roots that go back to Malaysian independence, it accounts for about 10 per cent of the world’s production of palm oil, a key commodity that goes into shampoo and cooking oils.
Graff took one look at miserable market conditions and decided this was a non-starter. Yet Felda plans to list in a month’s time, when conditions could just as easily be as poor.
So why is Felda pressing ahead? Partly, the answer lies in the politics of Malaysia’s expansive palm oil plantations. The entity planning to issue shares, Felda Global Ventures Holdings (FGVH), is part of the government’s Federal Land and Development Authority (Felda), which owns a vast 880,000 hectare plantation landbank. Felda is selling down its stake in FGVH to 40 per cent.
Felda was set up in 1956 as a nation-building, land redistribution project to settle farmers onto huge areas of cleared forest so they could grow palm oil and rubber. It was the brainchild of the father of current prime minister Najib Razak.
With Najib expected to call an election soon, his ruling coalition has been keen to find ways of spreading the “economic dividend” of Malaysia’s recent growth more widely – a tactic that won’t exactly hinder his re-election prospects at a time when many political analysts say the opposition could improve on its strong 2008 performance. March also saw the introduction of the country’s first minimum wage, of 900 ringgit ($297) a month.
The float looks set for strong local support. Of the 2.29bn new shares being allocated, about 75 per cent will go to domestic investors. Four big domestic pension funds are among them, plus an organisation that helps fund the annual pilgrimage to the hajj in Saudi Arabia. With Malaysia running a net surplus worth 16 per cent of GDP and domestic funds looking to park liquidity somewhere useful, Felda could be the perfect place.
Intriguingly, about 12 per cent will go to 120,000 so-called “settlers”, palm oil farmers working on Felda’s plantations – many of them descended from the original plantation workers. Add in their extended families, and analysts reckon that about 1m people stand to benefit, all told, across peninsular Malaysia.
Malaysia: sharing the prosperity, beyondbrics
Hunt for yield fuels appetite for Asia debt, FT
Domestic demand bolsters south-east Asia, FT
A palm oil storm in the making, Alphaville
Malaysia: so far, so good…for now, beyondbrics