Felda raises $3.1 billion from Malaysian IPO

Felda Global Ventures, a Malaysian government-owned agricultural commodities company, has raised M$9.9 billion ($3.1 billion) after pricing its much-awaited initial public offering near the top end of the indicated price range.

The deal highlighted Malaysia’s growing presence in the Asian IPO market, which is generally helped by strong support from domestic investors. Elsewhere in Asia several high-profile deals have been either pulled or postponed in recent weeks due to tough market conditions, including Graff Diamonds’ $1 billion offering in Hong Kong which was called off the day before pricing.

Felda, which focuses primarily on crude palm oil, rubber and sugar, fixed the price at M$4.55 per share, near the top end of the price range that ran from M$4 to M$4.65. Retail investors will be able to buy the shares at a 2% discount, suggesting they will pay M$4.459 per share.

Felda sold 60% of the company in the form of roughly 2.189 billion shares, of which 44.8% were new shares. The rest were existing shares sold by the Federal Land Development Authority, which owned 100% of the company before the IPO.

The deal comes with a 5% greenshoe option that could increase the free-float to 63% and the maximum proceeds to about $3.3 billion. The trading debut in Kuala Lumpur is scheduled for June 28.

Of the total, approximately 1.9 billion shares went to institutional investors, including so-called Bumiputera (or ethnic Malay) institutions that were assigned some 19.2% of the overall deal. Five state governments also bought about 18%, according to the prospectus. Another 33% went to 10 cornerstone investors, while commodity trading firm Louis Dreyfus bought close to 4.2% of the deal — enough to give it a 2.5% strategic stake in Felda after the IPO. Some 273.6 million shares, or 12.5% of the overall deal, were earmarked for retail investors, employees and Felda settlers.

That meant that only about $405 million was left to place with domestic and international institutions combined.

About 350 institutional investors participated in the transaction, according to a source, and the coverage ratio of the institutional tranche, excluding the shares set aside for Bumiputera investors, was in the double-digits. The ratio varies depending on how you calculate it, but reports that the actual institutional tranche was more than 30 times covered sound about right, the source added. The institutional tranche was distributed evenly between international and domestic accounts, he said.

The 10 cornerstones, which had to commit to a six-month lock-up, include Qatar Investment Authority, AIA Group, Value Partners and Fidelity, as well as six Malaysian entities. The Guoco Group is investing through three different entities, which explains why some reports are talking about 12 cornerstones.

Investors appear to be favouring Malaysia and the Philippines at the moment as they have become somewhat wary about Chinese companies, bankers say. Malaysian deals are also doing fine because there is a lot of domestic pension money supporting the offerings.

At $3.1 billion, Felda’s offering is the largest IPO in Asia this year and the second-biggest in the world after Facebook’s $16 billion deal, according to Bloomberg data. So far this year, five companies have floated their shares in Malaysia, raising a combined $348 million. Including Felda, Malaysia has now surpassed Hong Kong, where 28 companies have raised a total of $3.18 billion through new listings since the start of this year. Hospital operator IHH Healthcare is currently doing investor education for a $2 billion Malaysian IPO, although there is a long list of Hong Kong IPOs in the pipeline as well that are currently waiting for market conditions to improve.

Felda is also the third-biggest listing in Malaysia ever after Petronas Chemicals and telecom operator Maxis, which raised $4.15 billion and $3.3 billion respectively.

The final price values the company at 12.8 times its projected earnings for 2013, which translates into a discount to its closest comparables. IOI Corp and Kuala Lumpur Kepong (KLK), which are viewed as two of the key comps, have different accounting years, making it difficult to make a direct comparison. However, IOI is currently trading at a June 2013 price-to-earnings (P/E) multiple of about 14 times, while KLK is quoted at a September 2013 P/E multiple of about 16 times.

In 2011, Felda ranked as the third-largest oil palm plantation operator in the world based on planted hectares, according to business research and consulting firm Frost & Sullivan citied in a prospectus. Its 49%-owned associate, Felda Holdings, is the largest producer of crude palm oil (CPO) in the world based on production volume

Felda is expected to use about half of the IPO proceeds for the acquisition of new plantation assets and another 19% for selective acquisitions of oil and fats, manufacturing and logistics businesses. The rest will go towards the construction or acquisition of mills and refineries, loan repayments, capital expenditure, and working capital.

Felda Global Ventures was incorporated in Malaysia in December 2007 as the commercial arm of the Federal Land and Development Authority for overseas investments in the upstream and downstream palm oil business and other agribusinesses.

CIMB, Maybank and Morgan Stanley were joint global coordinators and Deutsche Bank and J.P. Morgan joined them as bookrunners.