FGV public shareholding spread: Will Bursa crack the whip?

COMPANIES float their shares mainly for one reason, to raise funds from investors.

A company which goes for listing on Bursa Malaysia must "let go" up to 30 percent of its equity to foreign and local buyers.

And to comply with the rules of the game, firms must ensure that a maximum of 30 percent of its ownership is sold to the public.

This 30 percent stake sold to the public or commonly called public spread shareholding, must be available to investors, floating in the open market at all times.

Felda not letting go of FGV?

Felda Global Ventures or FGV is the commercial arm of Felda or the Federal Land Development Authority.

When it was listed in 2012, the government-owned Felda owned some 50 percent of FGV.

And now, Felda owns up to 81 percent of FGV while another 10 percent is owned by institutional investors.

This only leaves 10 percent of FGV shares available to the retail rakyat traders.

CPO prices was at an all-time high

Obviously, the number one reason why Felda is reluctant to let go off FGV shares was because of solid crude palm oil prices.

Recall that CPO prices reached an all-time high of RM8,000 a month in March when Russia invaded Ukraine.

And now CPO prices have halved to RM4,000 a tonne due to the waning war.

Felda should have sold its stake in FGV when it's share prices were high in tandem with robust CPO prices like what any other investor would do.

But instead, Felda is hanging on to FGV shares hoping that CPO prices could stage another rebound.

Whichever way, minority shareholders are at the losing end here as they can't reap the rewards when CPO prices roll.

FGV privatisation - what is Felda waiting for?

Another reason why the government-owned Felda is accumulating FGV shares is due to its intention to take the company private.

FGV is grossly undervalued having lost its value to RM1.62 from its IPO price of RM4.55 in 2012.

Furthermore, FGV is grossly undervalued with a share price of RM1.35, below its net tangible asset price of RM1.65.

On the contrary, its rival Kuala Lumpur Kepong Bhd is trading at RM21.60, which is 1.67 times higher than its NTA of RM12.20.

By right, now that Felda has crossed the 70 percent ownership of FGV to 80 percent, it must compensate existing shareholders under an exercise called the mandatory general offer.

This will provide a choice for the minority shareholders owning shares in FGV to either cash out or stay with the company.

So, what is happening Felda? Will FGV be privatised or not?

FGV is a political hotbed

Felda is also holding onto FGV due to political leverage.

Everything about Felda and FGV is politically sensitive spanning from the appointment of its chairman and group chief executive.

The entire entity is a political hotbed and by having a firm grip on FGV, Felda can easily dictate any corporate manoeuvres without seeking any shareholders' approvals.

FGV and Felda is home to 4-5 million smallholder families occupying major state and Federal parliamentary seats.

With so much at stake now that the 15th general election is 19 days from now, Felda needs to have a stranglehold on FGV without being burdened by cumbersome shareholders' approval.

Thus, it is unlikely that FGV's public shareholding will be resolved anytime soon until the election is over.

Investors still clinging on to hope

More often than not, there are two types of companies in this world - a listed one and an unlisted enlisted firm.

What is the difference between the two?

A listed firm shares part of its profits by selling up to 30 percent of its equity to the rakyat.

The company in turn gets to raise funding from both retail and institutional investors.

The floating of the shares is called an initial public offering or IPO.

But if the rakyat cannot own shares of a public listed firm, why would the company get listed in the first place.

So regardless of whatever that happened to FGV, investors are still clinging to the hope that they can own FGV shares.

This will come to naught unless Felda frees up its grip on FGV just a little bit.

Issue not unique to FGV

Not surprisingly, the issue of limited shares of certain companies available in the market is not unique to FGV alone.

Some company shares are too illiquid and too expensive.

Thus, their shares are hard to come by.

The companies need to split their shares to make it more affordable for investors. This will solve insufficient public spread.

Will Bursa crack the whip?

Market regulator Bursa Malaysia gave FGV till last August to address its public spread.

FGV then applied for a time extension to resolve the issue but it was rejected by Bursa Malaysia last week.

Bursa had threatened that it will delist FGV unless the 30 percent public spread issue is sorted out.

It is now October and FGV shares are still trading in the open market.

What will Bursà do?

Bursa has bared it's fangs. It is time to act. - DagangNews.com