NOT since TIME dotCom was floated in 2001 has the listing of a company on Bursa Malaysia generated so much hype.
Some 52.9% of its oil palm trees may be more than 20 years old, but plantation company Felda Global Ventures Holdings Bhd (FGV) is certainly attracting a lot more interest than it warrants. Any other planter with FGV's maturity profile would probably not consider going public.
This is because investors generally shun plantation players whose oil palm trees are mostly more than 20 years of age. For comparison's sake, the average age profile of Singapore-listed Bumitama Agri Ltd is only five years. For the next 15 years, Bumitama will see a rise in production, which will help it weather both high and low crude palm oil (CPO) prices.
FGV has nothing of that sort. Its greatest selling point is its hectarage — some 355,000ha of plantation land that is mainly planted with oil palm. It also has the output of 500,000ha that belong to settlers under its control.
But there are issues with managing the output of the smallholdings. Very often we hear stories of settlers selling the fertiliser and fresh fruit bunches to third parties for quick gains. This probably contributes to the low yields of the plantations under FGV.
Generally, oil palm trees are most productive from their 9th to 20th year. However, some well-maintained plantations start reaping healthy harvests after the seventh year.
Because of its mostly old oil palm trees, FGV will have to spend a tidy sum on replanting activity post-listing. This means there will be less funds for acquisitions and growth from the listing proceeds.
But now, these facts probably do not matter to investors hungry for FGV shares. As the government is solidly behind the listing, there is a mad scramble for the shares. Moreover, FGV is touted as a company that will not fail and is expected to outperform all the other government-linked companies (GLCs) that have gone public so far.
The listing is set to become a feel-good factor for the Felda settlers. A sum of RM15,000 has been promised to each settler and an initial amount of RM5,000 has already been disbursed. The rest of the money will be given out from the listing proceeds.
So great is the demand for the FGV pink forms that bankers say even non-stock market regulars are opening accounts after having been promised the shares. Investment banks are prepared to offer full financing to those who are successful in getting the shares.
In the process, the portion allocated to foreigners has been trimmed, which has not gone down well with them. Local funds are also not getting enough shares.
But does anybody really care? Not really. The fact that FGV will be a sure winner has overshadowed all other agenda on the table.
According to FGV's prospectus, institutional funds are to be allocated some 40% of the shares. But this has come down quite a bit, causing local and foreign fund managers to fight for what is left.
It's easy to fathom the frustration of the funds because most recent IPOs have not performed well, even in established financial centres such as Hong Kong. Also, the pricing of most new listings is at the bottom of valuations.
FGV's was one of the few listings where the funds saw a way of making a quick buck. But now, after the allocation has been completed, they would have realised that "sure winner" IPO shares are not easy to come by.
The irrational exuberance has even gone down to the cornerstone investors. Despite commodities entering a bear market — which means lower CPO prices — and their investment being tied up for six months, they do not seem worried.
Apart from the usual suspects — the Employees Provident Fund and Permodalan Nasional Bhd — the cornerstone investors include Tan Sri Chua Ma Yu's CMY Capital Sdn Bhd, Hong Leong Foundation and Hong Kong-based Value Partners.
One cornerstone investor says that as long as the government's support is there, there is nothing to worry about.
The question is, how long will the euphoria last?
Maybe not for very long because FGV's fundamentals will take a long time to rectify. For any plantation company to sustain its performance, its maturity profile must be balanced. The majority of the oil palm trees should be between 7 and 15 years of age. This is what FGV's management will need to work towards.
But it will be a difficult task, especially in the 500,000ha belonging to the settlers. Each settler probably has a small plot and will likely resist any replanting exercise even when CPO prices are low because he will have no income.
This is why major planters such as the Kuok group prefer large-scale plantations — management planning is easier. Bigger plantations mean the maturity profile of the oil palm trees can be better managed.
So although FGV can pride itself on being one of the biggest plantation companies in the world, in reality it has a bumpy road ahead of it. And when the euphoria over its IPO dies down, the reality will sink in. Hopefully, the government funds will not be left holding the baby.
M Shanmugam is deputy editor-in-chief at The Edge. Comments: . This story appeared in The Edge on June 25, 2012.