Cover Story: Saving Felda

Jose Barrock (The Edge Malaysia)

THE Pakatan Harapan government presents a White Paper on the Federal Land Development Authority (FELDA) in Parliament on Dec 10 and, according to sources familiar with the matter, it will likely contain proposals to restore proper financial management and governance to the agency.

But the main concern is that the elephant in the room — the acquisition of a 37% stake in PT Eagle High Plantations Tbk for US$505.4 million (RM2.26 billion at the time) — will not be fully addressed (see accompanying story).

Nevertheless, one source says at least three proposals have been mooted to revive the beleaguered FELDA, which was founded in 1956 to resettle the poor and eradicate poverty, and which is the 33.67% parent of Bursa Malaysia-listed FGV Holdings Bhd (formerly Felda Global Ventures Holdings Bhd).

“There are three plans. One involves FELDA’s management being beefed up, the second the privatisation of FGV to get things back to where they were before its flotation in 2012, and the third, merging FELDA with another government-owned company that is involved in development … probably Felcra (Federal Land Consolidation and Rehabilitation Authority Bhd),” he says.

The first proposal, it seems, is like a public-relations exercise, where there is a lot of talk about sustainability, strengthening management at all operating levels of the agency, ramping up fresh fruit bunch (FFB) production and the oil extraction rate (OER), and reducing internal costs via improvements in efficiency to the highest level in the country.

To recap, FGV — which is FELDA’s main revenue generator — produced 4.26 million tonnes of FFB and processed 15 million tonnes of it to produce 2.99 million tonnes of crude palm oil (CPO) and 0.8 million tonnes of palm kernel from 450,000ha of plantations last year.

Average CPO production cost (ex-mill) for last year was RM1,592 per tonne while OER was 19.83%. It is noteworthy that FGV’s oil palm average age profile is 14.5 years. According to analysts, the planter is not as efficient as some of its peers.

Industry observers also attribute the mismanagement at the plantation group to both FELDA and FGV having the same chairman. But the reasons for the problems and corruption at both entities run deeper than that.

Privatisation of FGV?

While the notion of taking FGV private has been bandied about, the setback has been its high price tag. At its close of RM1.22 last Thursday, FGV had a market capitalisation of RM4.45 billion. With FELDA’s 33.67% stake fetching a market value of almost RM1.5 billion, the remaining shares would be worth RM2.95 billion. Assuming a 20% premium, the price works out to RM3.54 billion.

Note that government agencies such as pilgrim’s fund Lembaga Tabung Haji, Kumpulan Wang Persaraan (Diperbadankan), armed forces fund Lembaga Tabung Angkatan Tentera and several state governments are all shareholders of FGV.

FELDA, Koperasi Permodalan FELDA (KPF), which is held by FELDA settlers, and the various government entities control about 66% of FGV. This means that FELDA — if it strikes a deal with the government agencies and the cooperative — could take over the rest of the shares that have a market value of only RM1.51 billion. Assuming a 20% premium is forked out, this would entail a payment of RM1.81 billion.

However, there could be problems as FGV’s initial public offering was at RM4.55 apiece, which is almost four times higher than its current trading price. So, it would take some RM5.64 billion to privatise the 34% stake not owned by FELDA, KPF and the government entities at RM4.55 each.

It would also be difficult to explain as when FGV was listed in 2012, it was stated in its prospectus that 36% of its oil palm trees were between the ages of 21 and 25 and 16.9% were more than 25 years old.

So, 52.9% of FGV’s plantations were regarded as old six years ago. Now, how did FELDA not expect the group’s current predicament when there has been aggressive replanting that impacted earnings adversely?

When a senior editor with a newspaper saw FGV’s prospectus in 2012, he said, “This is the first time I have seen such an old age profile for trees — more than 50% of the trees are above 20 years old. It’s like FELDA is disposing of its ageing plantations.”

Indeed, FGV has performed poorly, largely due to its plantation profile and weak CPO prices. In its six months ended June 30, it suffered a net loss of RM21.9 million on revenue of RM7.04 billion. It had deposits, cash and bank balances of RM1.64 billion, and short and long-term debt commitments of RM3.1 billion and RM1.13 billion respectively.

FGV also owed RM109.28 million to a significant shareholder.  In the six months ended June 30, it forked out RM95.13 million in finance costs.

Listing was a mistake

Coming back to the White Paper, sources say it will likely state that the flotation of FGV was a mistake. They add that in 2009, FELDA’s net debt stood at RM1.5 billion, which translated into a gearing of 14%. However, as at June 30, borrowings stood at RM8.025 billion or a gearing of 46%.

FGV’s listing raked in RM5.99 billion cash for FELDA and RM4.89 billion for the company. While there are details of how the funds were spent, the explanations are “sketchy at best”, the sources point out.

According to the sources, the White Paper says research on the issues indicates weak management, bad corporate governance and misappropriation.

In FGV’s flotation exercise, all ancillary activities of FELDA and its plantations were injected into the company on a 99-year lease. This ensured that the agency would receive a fixed payment every year and 15% of the plantations’ operational profits. FELDA was also slated to receive 33.67% equity interest in FGV and enjoy the dividends and benefits of any share price increase.

But this has not happened, and FGV’s indicated gross dividend yield at its last price of RM1.22 on Thursday was 4.1% with payouts of between 1 sen and 10 sen per share since 2012.

Prior to FGV’s listing, it was paying FELDA yearly dividends of between RM100 million and RM150 million. Based on total dividends paid in FY2016 and FY2017, and FELDA’s 33.67% stake in FGV, it received RM12.3 million and RM61.4 million respectively.

It is also noteworthy that FGV has a 51% stake in sugar refiner MSM Malaysia Holdings Bhd, which ended trading at RM2.81 last Thursday, which translates into a market capitalisation of RM1.97 billion. Note that MSM’s stock is trading at its lowest level since mid-2011, hitting a low of RM2.80 in intra-day trade last Thursday.

Nevertheless, much of the issues at FGV only came to light when, as a publicly traded company, it was forced to reveal much of what transpired at the company, including its payments for assets, among others.

“I prefer FGV to remain listed because that will ensure good corporate practices and transparency. Or else, it will be like FELDA where there is no inkling of where the RM6 billion it received from FGV’s IPO disappeared to,” says a banker.

It seems the White Paper also states that FELDA only utilised 24% of the RM6 billion from the listing for expansion.

According to sources, nine companies were set up from 2013 but their businesses faltered and they now owe FELDA RM2.67 billion.

“The notion that FELDA is well run and FGV is the problem, that FGV’s listing brought about the agency’s problems, is nonsense. FELDA is badly run, full stop,” says a source familiar with FELDA.

Proposed merger with Felcra

According to its annual report, Felcra is principally engaged in the provision of plantation services, focusing on the integration, rehabilitation and development of land, as well as the processing and marketing of commodities.

Interestingly enough, both FELDA and Felcra are slated to come under the purview of the Ministry of Economic Affairs whose minister is Datuk Azmin Ali, say political sources.

According to its website, Felcra has 257,078ha of plantations. Its latest publicly available annual report for the year ended Dec 31, 2014, reveals that the authority registered an after-tax profit of RM123.86 million on revenue of RM1.75 billion.

It manages 220,086ha planted with oil palm, rubber and padi for a minimal management fee.

As at Dec 31, 2014, Felcra had cash and cash equivalents of RM1.07 billion, and long and short-term debt commitments of RM1.54 billion and RM57.87 million.

It is not clear how a FEL­DA-Felcra merger can be done or if Felcra is a well-run entity. This is important as the White Paper is said to talk about misappropriation and mismanagement at FELDA.

News reports have it that Felcra has been self-sufficient with zero allocations from the government since it was corporatised in 1997. Instead, it has a loan at 4% interest from the government.

According to news reports, Felcra’s recently appointed chairman Datuk Mohamad Nageeb Ahmad Abdul Wahab has undertaken a full management audit of the group and its subsidiaries, which is a precursor to rationalisation and restructuring.

There was talk of listing Felcra in the past but in a recent interview, Mohamad Nageeb said, “There is a strong perception that if Felcra were to go for a listing, then it will become another FGV.”

Apa ertinya menjadi Melayu dan Islam

Zolkharnain Abidin

Negara ini sebenarnya milik Tuhan, bukan milik kita. Tuhan menjadikan negara ini sebegini supaya ia boleh dikongsi dengan orang lain.

Jika Tuhan mahu, Dia boleh menjadikan negara kita ini hanya untuk dihuni oleh umat Melayu Islam saja, tapi Dia tidak menjadikan negara ini begitu.

Agaknya, apa jadi pada negara ini jika ia hanya dihuni oleh orang Melayu Islam saja?

Pada masa sama kita juga mahu orang kafir Switzerland berkongsi negara mereka yang indah itu dengan orang Islam di sana.

Kita mahu orang kafir Finland berkongsi sistem pendidikan mereka yang canggih itu bersama-sama semua orang, termasuk orang Islam di sana.

Di AS, kita mahu kafir Uncle Sam itu berkongsi teknologi negara mereka dengan orang Islam yang di sana.

Kita masih bertegas bahawa orang kafir di China, di India, di Thailand, di Fiji, di Macau dan sebagainya berkongsi bumi mereka dengan orang Islam yang tinggal di sana.

Cara menjadi tuan

Katakanlah di sini, kita kata bahawa bumi ini milik datuk nenek moyang kami orang Melayu. Justeru semua orang bukan Melayu atau kafir bolehlah nyah dari sini.

Mengapa? Sebab kami tuan di sini.

Kemudian bagaimana pada masa sama orang kafir Switzerland pula bersuara dan menuntut supaya bumi tempat datuk nenek moyang mereka tinggal itu tidak layak didiami oleh orang Islam?

Bagaimana kalau mereka berkata kepada orang Islam: "Nyahlah kalian orang Islam dari sini kerana kami tuan di sini"?

Bukankah dunia akan menjadi huru-hara jika penduduk Bumi ini saling halau-menghalau sesama mereka?

Jika orang Melayu Islam mahu kekal sebagai tuan di negara ini, satu-satunya cara untuk menjadikan kehendak itu dihormati ialah dengan menunjukkan perangai yang baik.

Ketuanan Melayu Islam tidak akan tertegak dengan kuliah-kuliah yang membodohkan umat Islam oleh para agamawan yang bertindak sesuka hati di mana-mana, termasuk di rumah Allah.

Kemudian di satu sudut lain dalam dunia ini, ada orang Islam sengaja membuka akaun palsu di Facebook dengan niat untuk memudahkannya memaki orang lain sesuka hati tanpa perlu dikenali.

Akhlak seorang tuankah kalau begitu?

Allah menjadikan manusia untuk bersaing sesama sendiri secara sihat, termasuk berlumba-lumba berbuat kebaikan supaya semua orang yang beragama boleh menikmati kemajuan dan keadilan.

Tanpa persaingan - menurut al-Quran - masjid pun boleh runtuh kerana orang Islam akan berlaku zalim sesama sendiri. Sejarah sudah membuktikannya.

Dalam semua agama, ada orang baik dan orang jahat. Orang yang paling baik dalam kehidupan dunia ialah orang yang paling berguna kepada dunia.

Orang Islam juga disuruh memungut segala kebijaksanaan daripada sesiapa saja yang memilikinya kerana kebijaksanaan adalah hak orang Islam.

Soalnya, bagaimana orang Islam boleh memungut kebijaksanaan itu jika kita sendiri sentiasa berada dalam prasangka, prejudis dan taasub?

Sanggupkah orang lain berkongsi kebijaksanaan mereka dengan kita - umat Melayu dan Islam ini - jika kita sendiri menjadi orang yang tak layak dikongsikan kebijaksanaan?

Jadilah tuan, tetapi seorang tuan yang berakhlak baik serta bijak. Berkongsilah alam ini dengan orang lain, kerana alam ini bukan milik kita semata-mata.

The mess at FELDA

Megat Zaharuddin: I’ve been in many turnaround situations before, big and small. This is big.

ECONOMIC Affairs Minister Datuk Seri Azmin Ali says he will table a White Paper on FELDA in parliament in December. We trace how the development authority and FGV Holdings have spent billions since 2013, leaving them in dire straits today.  

In late 2013, officials from the Federal Land Development Authority (FELDA) who were in London were summoned to meet Russian businessmen who represented fertiliser giant Uralkali PJSC.

With the Russian businessmen was a Malaysian corporate player who was closely associated with a former politician. After exchanging the usual pleasantries, they got down to business. FELDA was in talks to buy a 7% stake in Uralkali for RM3.5 billion.

“It (the RM3.5 billion) was at a massive premium at the time. Thankfully, the deal didn’t go through. Some of the officials asked why we were paying such a premium and what we were going to do with 7%. Honestly, at such a premium, we could have just mopped up the 7% on the open market,” an official involved in the deal says.

A check on Bloomberg reveals that in December 2013, Uralkali’s stock traded at between 163.16  and 173.52 roubles. Today, the stock has fallen about 50% and the company’s market capitalisation stands at US$3.73 billion (RM15.49 billion), which means the 7% would have a market value of just RM1.08 billion.

“Many of FELDA’s deals are like this. No one knows why FELDA went into many of its deals,” the official adds.

FELDA similarly acquired a 37% non-controlling stake in Indonesian planter PT Eagle High Plantations Tbk from Tan Sri Peter Sondakh’s Rajawali group for US$550.4 million — which was at a massive premium — and is sitting on a huge paper loss (see accompanying story).

It is not known how much it takes to operate FELDA or what sort of expenditure the development authority incurs but what is clear is that there is no consensus on what it has done with all its money.

FELDA’s annual reports are not made public, making it difficult to gauge its financial performance and position, as well as the extent of the mismanagement and other shenanigans at the plantation outfit.

FELDA was established on July 1, 1956, under the Land Development Ordinance of 1956, with noble intentions — for the development of land and relocation, and with the objective of poverty eradication through the cultivation of oil palm and rubber.

Nevertheless, from the initial public offering of Felda Global Ventures Holdings Bhd (now FGV Holdings Bhd) in mid-2012, FELDA raised RM5.5 billion as part of its offer for sale of shares. A few years earlier, in 2009, FELDA got RM1.57 billion from the sale of its 49% stake in Felda Holdings Bhd to FGV.

It is also noteworthy that FGV has paid a total of RM1.5 billion to FELDA under its land lease agreement since its listing in 2012. Since its flotation, FGV has paid a total annual dividend per share of 50 sen to its shareholders. In FY2012 and FY2013, FELDA held 1.41 billion shares, or a 38.66% stake, in FGV but subsequently reduced its holding to 33.67%, or 1.23 billion shares. At a lower quantum of 1.23 billion shares for the entire six years, FGV has paid out RM615 million to FELDA.

Even if the durian runtuh payments to the settlers of RM1.69 billion — or RM15,000 each after FGV’s listing — were taken into account, it is still puzzling how FELDA finds itself in financial turmoil today.

According to its chairman Tan Sri Megat Zaharuddin Megat Mohd Nor, who was appointed on July 27, the outfit is drowning in debts of RM8.05 billion, and its cash flow needs to be strengthened.

Strange acquisitions

According to former associates and officials of FELDA, in mid-2013, a wholly-owned subsidiary known as Felda Investment Corp Sdn Bhd (FIC) was set up to venture into businesses other than plantations.

Checks on the Companies Commission of Malaysia’s website indicate that FIC was incorporated in early July 2013 as Capital Protocal Sdn Bhd and had its named changed to FIC in November 2013. It had a three-pronged strategy to venture into property development, hotels and facilities management (FM), namely non-plantation businesses, while FGV focused on plantations.

“The three areas were selected because there would be very little capex involved. FELDA already had land bank and hotels, while there was ready business for FM,” a former FELDA official explains.

The development authority owns five hotels under its Felda Residence brand — one each in Sg Klah and Trolak in Perak, one in Tekam in Pahang, one in Tanjung Leman in Johor and one in Kuala Terengganu. Thus, managing these hotels and other properties such as the buildings in Jalan Sultan Yahya Petra (formerly Jalan Semarak) will keep the FM business busy.

FIC only needed FELDA to support its hotels through the settlers utilising its facilities. But instead of sticking to this plan, FIC acquired the Grand Plaza Serviced Apartments in Bayswater, London, for £98 million (RM500 million). Then in end-2014, it acquired the Grand Plaza Kensington Hotel in London for £60 million (RM330 million) to “diversify its investment assets”.

Recently, after revealing that the development authority’s cash flow was in dire straits, Megat Zaharuddin said he would sell the hotels. “I’ve been in many turnaround situations before, big and small. This is big. The turnaround of FELDA will need a minimum of two years,” he said.

How he expects to get a good deal for the hotels remains to be seen, as any interested buyer is likely to squeeze FELDA after its admission of being cash-strapped.

While FELDA’s financials are not available, in its financial year ended Dec 31, 2016 (FY2016), FIC suffered an after-tax loss of RM329.92 million on revenue of RM413.92 million. As at end-FY2016, it had accumulated losses of RM661.79 million, which is shocking considering that it was only set up in 2013.

As at end FY2016, FIC had non-current assets of RM3.22 billion and current assets of RM1.20 billion. It also has non-current debt commitments of RM2.68 billion and short-term borrowings of RM1.9 billion.

And FIC has not paid FELDA any dividends since it was incorporated in 2013.

IRIS and Encorp

In August 2013, just a few months after the three-pronged plan was mooted, FIC bought into IRIS Corp Bhd, taking a 25% stake for RM110.3 million via a private placement. IRIS placed out 394 million shares at 28 sen apiece.

It was a standing joke in the marketplace that FELDA officials were bragging that FIC was paid dividends of 0.45 sen per share in November — it had paid RM110.3 million for the 25% stake in IRIS and got back RM1.773 million.

And IRIS has not paid any dividends since.

It is also noteworthy that since July 2015, IRIS has never traded above 28 sen. This means that its closing price of 15 sen last Wednesday would have resulted in FIC sitting on a huge paper loss.

After the initial 25% stake, FIC acquired an additional 132.27 million shares in IRIS in mid-November 2013 via another placement at 26 sen apiece, nudging up its holding to 26.71%.

In total, FIC spent RM144.69 million on buying 26.71% of IRIS.

In April 2014, FIC sold three million IRIS shares for 33.4 sen each, another three million at 33 sen and four million at 30 sen. In other words, it made RM3.19 million from the sale of 10 million shares.

Other sales have also been below the acquisition price.

In February 2016, FIC hived off nine million shares at 20 sen apiece. It sold five million shares at 17.5 sen in March the same year, 2.5 million shares at 16.5 sen at end-April and 4.49 million shares at 17 sen in November. It disposed of 7.52 million shares at 13.1 sen in early December and let go of 55,000 shares at 13 sen on Dec 7. This means 28.56 million shares were sold for RM4.84 million.

After 2016, FIC stopped indicating the price at which it sold its shares but it has disposed of 98.95 million shares since then. It now holds a 14.6% stake, or 360.81 million shares, in IRIS.

Taking the loss made on the 14.6% block in IRIS at last Wednesday’s close of 15 sen and averaging the acquisition price at, say, 27 sen will mean that FIC is sitting on a loss of 12 sen per share, or RM43.3 million.

Another puzzling acquisition by FIC was done in early May 2014. It bought a 49.5% stake in Encorp Bhd for RM239.72 million, or RM1.55 apiece, from parties linked to Tan Sri Mohd Effendi Norwawi, triggering a general offer.

FIC and FELDA ended up with 72.27% of Encorp after forking out RM306.11 million. However, Encorp closed at 42 sen last Wednesday, which means it had lost 73% of its value and FELDA was sitting on a major paper loss of RM223.45 million. This is excluding the acquisition of Encorp’s loan stocks and warrants.

“God only knows why they (FELDA) bought into Encorp. It has very little land bank and its mall (Encorp Strand Mall) in Kota Damansara is not exactly doing well,” the former official remarks.

While Encorp’s net asset value per share in June 2014 was RM1.74, its annual report for FY2014 indicates that the company owned shoplots and office suites, small parcels of land in Selangor, 5.83 acres of freehold land held for development in Batu Ferringhi in Penang, 3.3 acres in Pulai, Johor, 0.8 acre in Canning Highway at Victoria Park in Western Australia and 2.72 acres in Perth. To put it bluntly, there was nothing substantial in Encorp for FIC to buy into.

It seems there were offers to buy the mall but Encorp’s partner in the venture, Perbadanan Kemajuan Negeri Selangor, wanted an exorbitant price.

It is noteworthy that Encorp’s second largest shareholder with 13.63% equity interest, or 40 million shares, is Anjakan Masyhur Sdn Bhd, a company linked to tycoon Tan Sri Syed Mokhtar Albukhary.

But why would Syed Mokhtar do anything for Encorp when he does not have control of the company?

Other than the above, there were other acquisitions by FIC such as the Grand Borneo Hotel in Kota Kinabalu, Sabah, for RM86 million, and non-revenue generating assets such as the construction of a training centre in Bangi for RM225 million and the stadium in Jengka for RM100 million.

It is also understood that FIC’s RM110.3 million acquisition of IRIS shares was via a loan obtained from FELDA. Other expenditure by the development authority that was reported by the media includes a RM300 million payment to the Sabah government, RM250 million to the Pahang government, RM400 million for housing for the settlers and RM883 million management expenses. Duit Raya payments for seven years from 2012 to 2018 totalled RM282.41 million.

Despite all this, there is still much that is unaccounted for at FELDA (see table).

The million dollar question is, how could a development authority like FELDA make so many bad decisions?