Felda’s fall from grace
Felda

Established under the Land Development Act 1956, it is now saddled with RM8b in loans

By ALIFAH ZAINUDDIN / Pic By HUSSEIN SHAHARUDDIN

A “White Paper” on the Federal Land Development Authority (Felda) will be tabled by the government during the next Dewan Rakyat sitting. What is worrying is the dire financial state of the government-owned authority.

Economic Affairs Minister Datuk Seri Mohamed Azmin Ali said Felda had also revealed that it faces critical cashflow problems due to political interference during the previous government’s administration.

Felda, which was established under the Land Development Act 1956, is now saddled with RM8 billion in loans. Its RM8.03 billion debt is the latest in a series of highly explosive scandals to hit the country.

But such a revelation was not a surprise. Previously, Felda had been the focus of controversial deals, allegations of mismanagement and corrupt practices in the last few years.

The current government is now looking to restructure the debts with Felda’s creditors.

Azmin said the key to reducing the loans would be to sell off several non-strategic assets, such as properties abroad and in the country.

White papers are policy documents produced by the government that set out their proposals for future legislation, which could provide a basis for further consultation and discussion with interested or affected groups before a bill is formally presented to Parliament.

Azmin revealed that Felda had transferred about 400,000ha of oil palm land to FGV Holdings Bhd for exploration and listing purposes in 2012.

Felda Was Once a Cash Cow

FGV paid a total of about RM1.5 billion to Felda since its 2012 listing,  including RM250 million annually and 15% from its annual profit as part of the land lease agreement signed by the two parties, said the planter.

Prior to listing in 2012, FGV was a wholly owned subsidiary of Felda. However, Felda Holdings Bhd (FHB) was jointly owned by Felda and Koperasi Permodalan Felda Malaysia Bhd (KPF), with the former holding 49% and the latter 51%.

In 2009, FGV acquired Felda’s 49% stake in FHB for RM1.57 billion cash. In 2013, after its listing, FGV acquired the remaining 51% stake in FHB from KPF for RM2.2 billion cash.

Following FGV’s listing in 2012, Felda had raised RM5.5 billion as part of its offer for sale of shares in FGV.

Going by the announced figures, Felda and its related entities would have gained about RM10 billion from the exercise and payments from listed planters.

The question now is, where did the money go?

In April 2017, Felda concluded a controversial deal to acquire a 37% non-controlling stake in debt-saddled PT Eagle High Plantations Tbk from

Indonesia’s Rajawali Group for US$505.4 million (RM2.26 billion) or 580 rupiah (16 sen) per share. The transaction was concluded at a 95% premium to the closing price.

The acquisition was made despite the many red flags raised by market watchers and industry players.

The initial plan was for FGV to buy the 37% stake for US$680 million. The proposal was dropped due to heavy public criticism, especially from its institutional shareholders. Felda Investment Corp (FIC) Properties Sdn Bhd completed the deal by 11.66 billion shares, or a 37% stake, in Eagle High.

Moreover, Felda now sits on a massive paper loss. Eagle High was traded at 220 rupiah per share last Friday, making Felda’s paper loss in the Indonesian planter rising to over 62% from the purchase price or a whopping US$414 million.

Property Purchases at a High

A few property purchases by Felda had also welcomed scrutiny over discrepancies in valuations.

Felda was alleged to have overpaid about RM180 million for the £95.65 million (RM538 million) Grand Plaza Serviced Apartments (SA) in Bayswater, London, in 2014. The transacted price was alleged to be 70% above market value in 2013.

Felda is unlikely to recover the £95.65 million it paid in 2014 due to the gloomy property market in the UK.

Additionally, FIC had put for sale its four-star Park City Grand Plaza Kensington Hotel. The boutique hotel was purchased by FIC for £60 million, its 12th investment in the group’s hospitality portfolio.

It is not known if the 62-unit Park City hotel had been sold and it was reported that Felda will face an uphill task to dispose of the property.

Felda also owns two student accommodations — Felda House and Grand Felda House — in London.

FIC’s Merdeka Palace Hotel and Suites purchase in Kuching in 2014 had also raised suspicions. The RM160 million deal for Merdeka Palace Hotel was said to be nearly double the value.

The Malaysian Anti-Corruption Commission (MACC) had investigated both the Grand Plaza SA and Merdeka Palace Hotel deals, but no charges had been brought to anyone related to the deals.

Besides the property purchases, Felda’s ownership of 16 parcels of land worth RM200 million along Jalan Semarak, Kuala Lumpur (KL), had come into question last year. The land is said to have been transferred to a primary developer in 2014.

Other Losses

Felda Caviartive Sdn Bhd recorded a RM47.6 million loss-making venture in a sturgeon fish rearing project. The MACC arrested five senior officers for questioning on possible abuse of power. Felda also had a failed pharmaceutical business in Australia.

Felda Wellness Corp Sdn Bhd had ceased operations in 2017, three years after its operation, and accumulated losses of RM154.76 million and cur- rent liabilities of RM154.03 million as at the end of the 2015 financial year.

Eagle High was not the only paper loss on Felda’s back. FIC had become a substantial shareholder in Barakah Offshore Petroleum Bhd in November 2014 with a 9.73% interest, or 73.5 million shares.

A check with Bloomberg showed that FIC is no longer a shareholder in Barakah. FIC disposed of 4.5 million shares in the petroleum service provider in June this year. It is not known how much losses were incurred by FIC. The investment arm for Felda is also staring at massive paper losses for its investments in Encorp Bhd and Iris Corp Bhd.

FIC has a 67.13% interest in Encorp and 15.76% in Iris. Encorp shares had dropped from 70.5 sen in January to 50 sen last Friday. From January to the present, FIC had lost approximately RM40 million in Encorp.

Restructuring at Felda will be herculean and with the total losses from all the investments and deals, it is anything but a mini 1Malaysia Development Bhd in the making.