Felda may opt to raise fund from debt markets

Agency could raise up to RM10b in debt papers, allowing it to repay all its debts with the balance to be used for expenditure

By MOHAMAD AZLAN JAAFAR / Pic By TMR

The Federal Land Development Authority (Felda) could opt to raise capital by issuing debt papers to pay off its RM8 billion borrowings as the state-owned agency struggles to restructure its assets while facing a severe cashflow crunch.

Felda, which is saddled with about RM8 billion debt, faces a herculean task to correct its balance sheet in a short period of time with so many creditors lining up and the complexity of restructuring various loans.

A market analyst said Felda could raise the money through the issuance of Islamic debt papers to offset all its current liabilities.

“It could start with a clean balance sheet, while it continues to restructure its assets,” the financial analyst told The Malaysian Reserve.

It is believed that the agency could raise as much as RM10 billion in debt papers, allowing it to repay all its debts with the balance to be used for operational and capital expenditure.

The move to raise capital from the debt market could mimic Lembaga Tabung Haji’s (TH) move to sell its non-performing equities and assets to a special-purpose vehicle (SPV).

Under the asset for cash swap deal, TH will transfer RM19.9 billion worth of non-performing assets, including land purchased from 1Malaysia Development Bhd, to a government-owned SPV. The SPV will finance the assets purchase by issuing RM10 billion, seven-year Islamic debt papers and RM9.9 billion of Islamic redeemable convertible preference shares.

The exercise is expected to be completed by the end of this month.

The creation of the SPV to take over TH’s non-performing assets was similar to the agencies created after the 1997 Asian financial crisis to take over billions of non-performing loans from the banking system.

Economic Affairs Minister Datuk Seri Mohamed Azmin Ali revealed that Felda is facing a “very critical” cashflow.

Azmin said Felda’s new management has been discussing with several financial institutions to restructure the agency’s debt, which would result in a saving of 15% to balance the debt of RM6.8 billion by year-end.

Its new chairman Tan Sri Megat Zaharuddin Megat Mohd Nor was reported as saying that the agency had put in place a number of restructuring methods to turn around the beleaguered agency.

He said Felda is considering restructuring bank loans and obtaining an extra lifeline for payments and disposing of some of the company’s assets.

Felda owns assets in London — namely a hostel, apartment and hotel — alongside hotels in Kuching and Kota Kinabalu, and land parcels.

It is estimated these assets are worth between RM2.1 billion and RM2.2 billion. But these assets alone will not be sufficient to plug the agency’s RM8 billion debt hole.

Felda cannot maximise its returns if it opts for fire sales of these assets. The agency’s turnaround plan is critical as it has to ensure the wellbeing of 112,635 settlers.

It is not known how Felda accumulated the almost RM8 billion debt. But over the last few years, it has invested in questionable deals and had given handouts to Felda settlers, a key political decision to ensure the support of the rural Malays.

In July 2017, the government forked out RM475 million to pay RM5,000 each to 94,956 eligible families under the scheme. An additional fund amounting to over RM950 million were also given out to erase farmers’ debts.

Felda also purchased 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 at that time.

Felda is also alleged to have overpaid by about RM180 million for the £95.65 million (RM538 million) Grand Plaza Serviced Apartments in Bayswater, London, in 2014.

It also paid £60 million for the four-star Park City Grand Plaza Kensington Hotel. The boutique hotel was purchased by Felda Investment Corp (FIC). The property is reported to be on sale for £41 million.

Other loss-making ventures include Felda Caviartive Sdn Bhd’s in a proposed sturgeon fish rearing project and a failed pharmaceutical business in Australia under Felda Wellness Corp Sdn Bhd which accumulated losses of RM154.76 million as at the end of the 2015 financial year.

Last Friday, former Felda chairman Tan Sri Mohd Isa Abdul Samad was charged in the Sessions Court with one count of criminal breach of trust and nine counts of corruption involving more than RM3 million linked to the FIC’s purchase of the Merdeka Palace Hotel and Suites in Kuching, Sarawak. The 69-year-old former mentri besar of Negri Sembilan pleaded not guilty to all the charges.