What is the news?

Golden Agri announced last Friday that it will acquire plantation assets for US$178 million. This acquisition comprises 16,000 ha of palm oil plantations. The assets are located in Indonesia.

In addition, Golden Agri will make a further investment of US$220 million in The Verdant Fund LP, a private equity fund aimed at developing palm oil plantations with its first development starting in Liberia. The additional investment in the Fund will be used to further develop the on-going Liberia project and to acquire palm oil plantations in Indonesia.

The acquisition and further investment will be funded from the balance of the unused portion of the proceeds of its recent exercise of 699 million warrants eW120723 amounting to about US$168 million, and part of its net proceeds of about US$394.45 million from the issue of US$400 million 2.5% convertible bonds (CB) in September 2012. Based on our calculation, over half of the proceeds from the CB are now already deployed after the acquisition and further investment announced last Friday.

How do we view this?

We estimate that Golden Agri will pay about US$11.1k/ha for the plantation assets acquisition. We believe the acquisition came at a relatively fair price, as compared to recent market transactions. Both the acquisition and further investment are consistent with the group’s business strategy.

Investment Actions?

We believe the acquisition is positive for Golden Agri and will ensure its production growth ahead. However, given the limited disclosure at this point in time, we are keeping our estimates intact. Maintain Accumulate at S$0.68.

Source: PhillipCapital Research - 24 Dec 2012