Felda listing faces bumpy ride

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KUALA LUMPUR (June 7): If the performances of companies listed on Bursa Malaysia this year are anything to go by, Felda Global Venture Holdings Bhd’s (FGVH) initial public offering (IPO) at the end of the month could be in for a bumpy ride.

Deepening strains in international financial markets and the increasing grim global economic outlook are inflicting serious wealth destruction in companies that have come on to the market over the last five months.

According to the IPO performance review on Bursa Malaysia, three out of five companies listed this year have lost between 4% and 20% of their market capitalisation value as at end May.

Property developer Sentoria Group Bhd lost 17.2%, elevator manufacturer and electronics distributor Eita Resources Bhd declined 12.8% and technology concern Pestech International Bhd slipped 4.95%.

Bucking the trend are China Stationery Ltd and oil and gas powerhouse SapuraKencana Petroleum Bhd which have gained 40.91% and 5.24% respectively since their first day closing market capitalisation.

The bleak outlook in international financial markets recently forced Graff Diamond Corp and the Formula One Group to cancel their respective US$1 billion and US$3 billion (RM3.17 billion and RM9.51 billion) IPOs in Hong Kong and Singapore.

The threat of Greece leaving the eurozone as well as weakening economic data from China and the US have already sent regional markets into a tailspin, sparking a fresh round of selling earlier this week.

Proponents of FGVH note that the company’s strong fundamentals and the robust demand for commodity stocks will help it ride the strong headwinds in financial markets. “There is a lot of demand for commodity players right now. The longer term demand outlook for crude palm oil (CPO) is still good, with the current scarcity of land, demand per capita has increased,” said a plantation analyst from a bank-backed research house.

Backers of FGVH also point to the strong interest the listing is generating. The book building for the stock has attracted more than 190 funds to date, of which 60% are local while another 40% are foreign, according to fund managers participating in the IPO. The fund managers said that long term funds make up roughly 65% of those participating in the book building exercise and the remainder is from hedge funds.

“The bidding had covered 22 times at strike and 25 times at bottom,” said a Kuala Lumpur-based fund manager who asked not to be named.

The 22 times at strike means bidding at the highest range which is RM4.65 while 25 times at bottom is bidding at the lowest price of RM4. But several other fund managers cautioned that a strong reception for a particular stock does not always translate into a successful IPO.

“Sometimes fund managers are asked to overbid to get the allocation they are looking for. When the allocations fall short of expectations, funds need to pick up stock in the open market,” said one Singapore-based fund manager.

According to the prospectus, retail investors will only be offered 7.5% or 273.61 million shares of the total share capital of 3.65 billion shares, while institutional investors will be offered 7.82% or 285.43 million shares.

Felda is offering some 2.19 billion shares to the public of which 980 million are new shares. Once listed, it will have a market capitalisation of RM16.6 billion based on its expanded issue base of 3.65 billion shares.

Interest in FGVH is also likely to be boosted by the prospect that the company will become a component stock of the FTSE Bursa Malaysia KLCI in coming months. That’s based on FGVH’s potential market capitalisation of RM16.6 billion upon listing, which dwarfs components stocks such as Bumi Armada Bhd, which has a market capitalisation of RM11.59 billion, AirAsia Bhd with RM10.09 billion, UMW Toyota Bhd at RM9.4 billion and UEM Land Bhd with a value of RM8.39 billion.

Amid the upbeat assessments of the FGVH public offering, several fund managers remain uneasy over the political opposition to the listing, which includes allegations that part of the land leased for 99 years to the plantation group include Malay Reserve land, a particularly sensitive issue among the country’s rural Malay community.

“There is a lot of unquantifiable risk here. I have never dealt with an IPO that had so many doubts,” said one fund manager, who is participating in the book building exercise and doesn’t intend to hold on to the stock for very long.

He cited several events this month that will determine market sentiment by the time FGVH is listed. He said the important dates are June 17 when Greece goes to the polls again to elect in a government; June 19 and 20 where the Federal Open Market Committee meeting may result in launching the third round of quantitative easing; and European Central Bank meeting this month to decide on the long term refinancing operation.

“FGVH’s listing is month-end after all these key events. If the market is bullish then the price may stretch higher. However, if it’s a bearish market, it will trigger selling and a 10% to 20% return is good enough,” he said, adding that some investors may pick up bargains in bear markets.

This story appeared in The Edge Financial Daily on June 7, 2012.

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Felda listing faces bumpy ride