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Palm oil giant prepares for second-largest IPO of 2012

oil palm fruit.
Oil palm fruit.

Felda Global Ventures Holdings Bhd. is readying a $3.2 billion public offering to fund expansion of its palm oil business, reports The Wall Street Journal.

In listing its shares June 28, the Malaysian state-owned palm oil behemoth aims to cash in on a global palm oil boom, which has seen oil palm plantations crop up outside strongholds in Malaysia and Indonesia. Felda, which has 323,587 hectares of plantations making it the third largest palm oil company after Malaysia-based Sime Darby and Singapore-based Golden Agri-Resources, already has holdings overseas.

The Wall Street Journal reports that demand for Felda’s IPO is strong, with shares being several times oversubscribed. The stock is expected to price at the high end of a 4 ringgit to 4.65 ringgit per share range. The IPO would be the second-largest of the year, after Facebook’s offering last month.

But like Facebook’s IPO, the outlook for Felda’s shares is not entirely rosy. The grower’s plantations are older than most of its competitors’ and will soon be past their prime. Furthermore, high palm oil prices are fueling rapid expansion of plantations — including plans for nearly 5 million hectares of new plantations in Brazil — threatening to eventually drive down the price of palm oil, which more than a quarter off its January 2011 high. Palm oil has also been targeted by environmentalists, who note that some expansion has come at the expense of wildlife-rich rainforests and carbon-dense peatlands.

According to The Wall Street Journal, politics may be another motivating factor behind the offering. 120,000 households will receive a one-time windfall from the IPO, potentially boosting support for Malaysia’s ruling party ahead of an election at a time when it is facing strong opposition. Felda processes, refines, and markets palm oil from 500,000 ha of smallholder plantations.

Malaysia is the world’s second leading palm oil producer after Indonesia.

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