- The Press reported that Felda Global Ventures (FGV) has not remitted the deposit for its purchase of a 37% stake in PT Eagle High Plantations.

- Sources said that Bank Negara has not approved the request to remit the deposit of US$174.5mil yet partly because FGV’s board of directors has not approved the deal. FGV’s board is said to be seeking more clarity on the land issues that had been raised in the due diligence.

- It appears that FGV may not be able to meet its deadline of end-FY15F for the completion of the acquisition of Eagle High. FGV was supposed to hold the EGM to seek shareholders’ approval for the acquisition of Eagle High before November 2015.

- Also, we reckon that the land issues in question by FGV’s board of directors are in respect of the size of the planted land and land, which has the required licences.

- Previously, it was reported that the purchase consideration of US$680mil for Eagle High may be revised downwards.

- We believe that the cancellation of the deal or any downward revision in the purchase price for Eagle High is positive for FGV.

- The original purchase consideration of US$680mil for Eagle High would have reduced FGV’s FY16F net profit by 6% to 10%. Net gearing would have exceeded 50% compared with 19.9% as at end-FY14.

- Also, the original purchase consideration may no longer be reasonable due to the declines in Eagle High’s share price and RM against the USD.

- When the proposal was first announced in mid-June 2015, Eagle High’s share price was Rp390 compared with the current share price of Rp237. The exchange rate was USD1.00:RM3.8030 in mid-June 2015 versus USD1.00:RM4.3863 currently.

- Maintain SELL on FGV with an unchanged fair value of RM1.18/share.

Source: AmeSecurities Research - 28 Sep 2015