Stock Market Predictions

Malaysia launches $3 billion IPO with eye on poll

Stock Market Predictions

The 58-year-old leader released the prospectus for the IPO of Felda Global Ventures Holdings (FGVH) at an event in the capital Kuala Lumpur that was as much political theatre as a financial announcement.

The listing is expected to raise 10.5 billion ringgit ($3.3 billion) based on the price for retail investors of 4.55 ringgit per share, giving it a market capitalization of more than 16 billion ringgit ($5.1 billion).

"The reason for the listing is to create wealth for Malaysians," Najib said in a speech. "There is no other way to create wealth in such a fast pace than listing."

The world's largest IPO this year after Facebook has already attracted a strong cast of cornerstone investors including French agribusiness giant Louis Dreyfus, Fidelity Investments and Middle Eastern sovereign fund Qatar Holding LLC.

That partly reflects strong investor interest in Southeast Asia, which has seen a burst of IPOs since the start of the year despite the protracted euro zone debt crisis, the debacle over Facebook's market debut and shaky IPO markets elsewhere in Asia.

The strong support from cornerstones, which are taking up about two-thirds of the IPO shares, and from Malaysian states in which the plantations are located, means the deal is unlikely to suffer the same fate as the social networking giant or the flurry of Hong Kong share sales that have been shelved recently.

There is also significant political capital invested in the sale, which is set to deliver a windfall totaling more than $500 million to tens of thousands of farmers in what is likely to be an election year.

Malaysia's equity market is dominated by local investors and a large domestic pension fund system that partially insulates IPOs from global volatility.

"So far, there has not been a single major IPO being pulled in Malaysia last year and this year," said Alan Tan, fund manager for Asian equities at Lion Global Investors in Singapore. "Felda is also government-owned, so the chance of it being successfully listed is quite high."

Still, Felda's is being launched amid a slump in global stocks, increased concerns over Europe's debt troubles and worries about slower growth in China. Four major IPOs in Asia Pacific worth nearly $2.5 billion have already been pulled this week, underscoring weak demand for new listings.

London luxury jeweler Graff Diamonds is the latest company to pull its planned $1 billion Hong Kong offering, the fourth major IPO to be called off in Asia in a week as stock markets slide.

MAJOR NEW PLAYER

Felda Global aims to become a major new player in global commodities and plans to use the IPO proceeds to expand into Southeast Asia and Africa.

The government's Federal Land Development Authority (FELDA), the parent firm of FGVH, manages more than 880,000 hectares (2.2 million acres) of plantation. That puts it among the world's largest producers of the palm oil that is used in everyday products from soap to cooking oil and which has tripled in price in the past decade.

The listing of FGVH clubs together refineries, plantation management companies and logistics firms as Malaysia looks to build an agribusiness to rival Singapore's Wilmar International (WLIL.SI).

For the about 1 million FELDA farmers and family members, or settlers as they are known, the IPO is the latest step in a remarkable transformation over a few decades from landless poor to landholders and now shareholders in a global conglomerate.

Najib's father, former Prime Minister Abdul Razak, started FELDA in the 1950s, handing out land to Malays to fight poverty and giving them a crucial role in making Malaysia the world's second-largest palm oil producer.

The farmers hold the key to a likely electoral dividend for Najib, whose ruling coalition faces a tough battle against a resurgent opposition in a national election that the prime minister must call by next March but which is expected sooner.

About a fifth of the proceeds from selling 2.19 billion shares will be handed out to 112,635 landholders, giving them a combined windfall of $553 million or nearly $5,000 each. That is more than the annual minimum salary, adding to the economic feel-good factor that Najib and his ruling UMNO party are trying generate ahead of the polls through a series of social handouts.

Najib announced that a second of three 5,000-ringgit tranches from the IPO proceeds would be handed out to settlers' "wife or wives" on July 7.

ELECTION DIVIDEND

The FELDA settlers form the bulk of the vote in 52 of Malaysia's 222 parliamentary seats, including Najib's base in Pahang state, and they are ethnic Malays - a core support group that has been drifting away from the National Front coalition.

Najib denied that electoral politics played a role in the listing.

"The rumor that the Malaysian government is manipulating the settlers with the IPO is not true at all," he said in his speech.

FGVH started offering its IPO shares to indigenous "Bumiputras" at an indicative price of 4.65 ringgit per share.

Bumiputra, meaning "sons of the soil" in the Malay language, refers to the majority ethnic Malays and other indigenous people who benefit from the decades-old affirmative action policy that favors them in housing, education and business.

Analysts have said Felda Global's aging palm oil trees, which need replanting, could be a drag on its future earnings and profitability. About 53 percent of the company's 323,587 ha of plantations estates in Malaysia are more than 21 years old, according to its draft prospectus filed on April 27.

In contrast, close to 72 percent of Indonesian plantation firm Bumitama Agri Ltd's (BUMI.SI) 119,162 ha of planted area are made up of immature and young trees. ($1 = 3.1630 Malaysian ringgits)

(Additional reporting by Yantoultra Ngui in Kuala Lumpur and Eveline Danubrata and Saeed Azhar in Singapore; Editing by Alex Richardson)