The Ipo And The Issuing Company

Published Date: 02 Nov 2017

When a company sold its shares of stock to the general public, it is to be said that the company has issued an initial public offering (IPO). Via this process, a private company changes into a public company. The issuance of IPOS of a company can enable the company to gain an immense capital, monetize the investments of early private investors, and to become publicly traded enterprises. In order for the companies to issue an IPO, they need assistances from investment banking firms to act in the capacity of an underwriter. The duties of underwriters are providing a valuable service, which includes help with correctly assessing the value of shares or share price, and establishing a public market for shares or initial sale.

The advantages of issuing IPO by companies are:

i. Access to capital to fund growth

Public placement of shares on a stock exchange helps the company to gain more capital that will be used by them to investment and expand their business. IPO is the most convincing and convenient ways of the company to gain an enormous capital and as the boost of creditability of its investment of their on business if the company has a small with retained earnings and an insufficient debt funding.

ii. Creation of liquidity and potential exit for the current owners

Formation of a public market for the company’s shares at fair price creates liquidity and provides an opportunity to sell the shares promptly with minimal transactional costs. The private owners of the company can dispose of their stakes in the business both during an IPO, while this route is often taken by the minority financial investors such as venture or private capital funds and at a later stage, while this is often preferred by the majority shareholders.

iii. Maximum value of the company

An IPO is an offer to a large number of institutional and retail investors to become shareholders of the company. The very multitude of large investors and their confidence in the liquidity of their investment in a public entity assure the current owners of a private company about achieving the maximum possible valuation of the business at the time of an IPO or afterwards.

iv. Enhanced loyalty of key personnel

Publicly available information about the share price of a public company allows development of employee motivation schemes based on partial salary of staff in the form of participation in the equity capital. For example, share options. Equity-based incentive schemes stimulate the key personnel to become more efficient in their work in order to support the company’s growth rates and profitable development. In turn, company can achieve the objective to increase the operational and financial efficiency of the company and its market value.

IDENTIFICATION OF INVESTMENT BANKER/BANKERS

Felda Global Ventures Holdings Sdn Bhd plans to hire investment banks by as early as can to help arrange it is initial public offering. The company plans to hire as many as two Malaysian investment banks. Besides that, the Global Venture Holdings Sdn Bhd will also be hiring one or two foreign merchant bankers. The Felda Global Ventures Holding Sdn Bhd said that the banks are being selected via a closed-tender exercise. This is because, interest on the Felda Global listing work is high, with the planned IPO already being touted as one of the biggest in Malaysia.

There is having speculation that CIMB and Maybank Investment Bank, that the pair handled MSM (Malayan Sugar Manufacturing) Malaysia Holdings Bhd's IPO for Felda, will be selected for the planned Felda Global IPO. The selected bankers will help Felda organize road shows at home and abroad to drum up interest.

For information, Felda Global is the commercial arm of the Federal Land Development Authority (Felda), which is the world's largest estate owner. It has been tasked with helping rural settlers to develop plantations of agricultural commodities such as oil palm and rubber.

On the size of the IPO, the numbers are being crunched, and restructuring activities are being held "to unlock the value". This will definitely be bigger than the MSM Malaysia Holdings Bhd IPO. Felda rose slightly more than RM800 million from the MSM share sale, which saw the sugar company valued at about RM2.4 billion. Koperasi Permodalan Felda, which is owned by the settlers, made a paper gain of RM300 million from the MSM IPO from its 20 per cent stake.

As part of the restructuring exercise, Felda Global and Felda Holdings Bhd will be merged into a single entity. This will help Global Ventures Holdings Sdn Bhd to unlock value for company stakeholders. This will be done by adding that the eventual structure of the listed entity will be somewhat similar to that of Sime Darby Bhd and IOI Corp Bhd. A listed Felda will have about 850,000ha of plantation land. In other words, the company will be bigger than Sime.

Therefore, the Global Ventures Holdings Sdn Bhd will also competitive in terms of plantation yields and our mill output is the best in the industry.

DISCUSSION OF THE TYPES OF ISSUANCE ARRANGEMENT

Felda Global Ventures Holdings Bhd (FGVH) is the second-largest oil palm plantation company in terms of planted area and the largest sugar refiner in Malaysia. Its 49%-owned Felda Holdings Bhd is the world's largest crude palm oil (CPO) producer. The process by an Initial public offering (IPO) is issued is called an underwriting. When a company wants to go public they contact an investment bank and hammer out the terms of the deal in the market. The investment bank agrees to sell the shares to the public. Sometimes the investment bank will also agree to buy the shares directly from the company and re-sell them to the public. Many single investment bank would not take on the whole risk of an IPO, so they will team up with other investment banks to form what is called a organization where one bank is the lead underwriter. Any investment bank involved in the IPO that will earn a commission based on a percent of the money raised in the IPO.

CIMB Investment Bank and Maybank Investment Bank are joint the principal adviser, joint managing underwriters and joint underwriters of the IPO. Underwriter is the most familiar in initial public offering process. The role of underwriter is the organization that is responsible for pricing, selling, and organizing the issue, and it may or may not provide additional services. Selection of a good underwriter is importance because company can understand that underwriters are equally selective of their clients. Besides that, underwriter's reputation also depends on successful issues and some few firms will be willing to stake their reputation on questionable companies. When selecting an underwriter, it is important to look for a company with a good reputation and quality research that in related field. The decision may depend on the kind of agreement the underwriter that is willing to make the sale of shares. Apart from that, it should not be difficult to locate an underwriter for profitable and established private companies which is willing to make a firm commitment arrangement. Under such an agreement, the underwriter agrees to buy all issues shares, regardless of ability to sell them at a particular price.

Besides that, underwriters and issuers can also handle IPOs in different ways. This is because, the underwriter is require to bought deal which is to purchase the entire IPO issue and the underwriter's profit is based on how many shares it sells, and also the spread between the discounted purchase price and the sale price of the shares to the public. For riskier or less established companies, an underwriter may offer best efforts arrangement for the initial public offering. A best efforts contract requires the underwriter to buy only enough shares to fill investor demand. Under this arrangement, the underwriter accepts no responsibility for unsold shares.

Evaluation of market acceptance of the IPO amongst the market participants

Felda Global Ventures Holdings Bhd (FGVH) has issued the initial public offering (IPO) on the year of 2012 by issuing 2.188 billion shares in order to raise RM10bil. The issued of IPO by FGVH has made the company to be the one who issued and second largest IPO in the world after Facebook and the largest in Asia region. Issuing FGVH shares to the general public might give the financial boost to the company, there are either few certainties or uncertainty expressed by the market participants regarding to the FGVH's IPOs.

Certain of market participants believed that it was a good move to invest in FGVH's IPO, regarding to the few aspects of the company. The stability in term on financial and management of the company also assured the participants to invest their money on FGVH. Since FGVH is backed up by the government, which also means that the company is financially stabilized due to the interference of the government which will do their best to make sure that the company is financially stable. Palms are the main product of FGVH, and despite on economic stability that hits the world especially the Europe and America region, the demand of palms-based product is increasing, in fact, the demands are in the months ahead due to the current low price of palm-based products.

The world is now more concern in preserving the Mother Nature, hence the public is always looking forward to substitute current and hazardous products that they use now with more eco-friendly products. The current announcement that made by Malaysia to start a project of creating biodiesel fuel made from oil palms has made the public to invest in FGVH since the project is an optimistic project that will be able to meet the current demand of people who are looking for ward to substitute those diesels and petrol that they used with not only would be cheap, but as well eco-friendly fuel that will be able to preserve the health of Mother Nature itself. If the project is a success, FGVH would be able have high profitability due to the massive demand for their products, and this eventually will improve the price of their stocks.

The uncertainty of the market participants regarding to invest in FGVH’s IPOs occurred due to the perception of what future market situation brings. Facebook Inc has the largest IPOs in the world, and the second place falls to FGVH itself. The perception of the market participant is unlike other IPOs in the world market like Facebook Inc and etc, FGVH’s IPOs can be easily affected by the current supply of the market itself. Since FGVH is a plantation based company, it is presumed the supply of products of FGVH can fluctuate and diminish easily, unlike the other IPOs in the market.

Since it is stated previously that FGVH is a plantation based company which emphasized on the palm trees, it is also known that the palm trees have their own expiration date, which when the palms trees are too matured and will no produce palm fruits anymore, FGVH will use lots of their capital to replant the trees, and this cause a shortage in supply of the product (Crude Palm Oil) since it will take another 6 years for the trees to produce the fruits and this eventually will decrease the FGVH’s IPOs due to the shortage which will lead to no demand not only for the product of FGVH but also for the IPOs as well.

Current Performance of the issuance being traded in the market and Conclusion

On the year FGVH making a debut on Bursa Malaysia, it has become the most anticipated listing of the year in Malaysia, and at the same time raised RM10 billion, which makes it to be one of the largest IPOs in the world.

On the first quarter of year 2012, the total revenue of FGVH reduced 87% compared to the previous year, which from RM359.05 to RM192.7mil. This is due to the higher cost of sales and administrative expenses incurred within the company. On this particular period of Q1, FGVH incurred higher high cost that caused by the replanting and manuring, which primarily reflecting a higher volume will be used and as well as higher fertilizer prices due to the excess demand of the product (fertilizers).

The operating profit before the Land Lease Agreement (LLA) and taxation for the year has decreased tremendously, from RM670 million compared to the last year which amounted RM948 million. Despite having loss on the first quarter, it was mainly caused by the liabilities incurred by the company, not due to less trades of FGVH’s IPOs since on that particular quarter, crude palm oil (CPO) by Felda Global Venture Plantation Malaysia (FGVPM) has boosted significantly beginning March of 2012.

Meanwhile on the second quarter of year 2012, the FGVH has scored a remarkable growth of profit percentage, which amounting 105%, from RM1.72 billion to RM3.54 billion. This is because on the second quarter of 2012, the expenses (liabilities) of the company has dropped significantly, hence created a large sum of profit made by the company. The sales of crude palm oil (CPO) kept on increasing, which at the same, helping the company to gain financial benefits as well.

In the meantime, FGVH has doubled it Q3 revenue, despite the fall of pre-tax profit on the Q3 of 2012 amounting RM318.66 million compared with the total pre-tax profit that they made in Q3 of 2012 which amounting RM544.64 million due to the lower price of crude palm oil on the particular Q3 of 2012. When the performance of Q3 of 2011 and 2012 is compared, it can be seen that the Q3 of 2012 has improved in term of profitability since the revenues has been doubled from RM.187 billion to RM3.77 billion.

Obviously on the year of 2012, FGVH has a prosperous year due to the stability of its IPOs, hence creating a massive profit for the company despite economic instability that hits the world. On that particular year, the company has concluded that they have made RM904.90 million profits, beating the analyst’s forecast that they only will be making RM790-RM800 million. The total net profit on the year of 2012 might be decreased when it was compared with the net profit that made on the previous year, due to market and operational factors that decreasing the price of its product (crude palm oils) and at the same time, the company has enter land lease agreement which has increased its liability but still, FGVH’s IPO has been implemented efficiently and make a tremendous profit for the company and the investors as well.

In conclusion, FGVH overall performance is in an excellent state, due to the profits that they made in year 2012, and at the same time, their strong positions of its IPOs in the market. FGVH full-year revenue for financial year ended Dec 31 of 2012 is RM12.89 billions as compared with the one that made during 2011 which only amounting RM7.45 billion. This has proved that FGVH has done a great job in the market by not only making a large sum of profit but strongly position its IPOs in the market.