The CEO of FGV said in a press interview that FGV will rely mostly on debt to finance the cash considerations  for the acquisition of a 37% stake in PT Eagle  High  Plantations  (BWPT)  and  will  keep  its  cash  reserve  of approximately  RM2.9bn  for  the  purpose  of  paying  dividends  to shareholders.  He  reiterated  that  FGV  is  not  overpaying  for  the  BWPT acquisition and that FGV will not be taking too much debt. (Source: The Edge Financial Daily)

Comments:  To  recap,  FGV  has  proposed  to  acquire  a  37%  stake  in interests in BWPT from Rajawali Capital to be paid with US$631.5m cash and  95.4m  new  FGV  shares,  and  a  95%  stake  in  a  sugar  project  from Rajawali  Corpora  and/or  its  affiliates  for  US$66.5m  cash.  Based  on  the acquisition  considerations  being  fully  financed  with  debt,  we  estimated EPS dilution in 2016E and a slight EPS enhancement in 2017E (which the company  said  later  would  be  EPS  neutral).  The  said  cash  reserve  of RM2.9bn is before the golden Land consideration of RM655m.

We  maintain  our  HOLD  rating  and  TP  of  RM1.92,  which  are  subject  to revision when the detailed terms, including financing structure and cost of financing as well as potential 2016E/17E EPS impact, are finalised.

Source: Affin Hwang Capital Research - 1 Jul 2015