The people might also get a more in-depth clarification on how Felda ended up with billions in debt

By MARK RAO / Pic By BERNAMA

All eyes are on the Federal Land Development Authority (Felda) today as the white paper that will shed more light on issues surrounding the state-owned entity, along with recommendations that could place it on the road to recovery, is to be presented in the Parliament today.

The people might also get a more in-depth clarification on how Felda, a once glorious body that was established on July 1, 1956, under the Land Development Act 1956 as part of Malaysia’s rural development agenda, ended up with billions in debt due to various alleged malpractices.

The paper will dissect all the poor investment decisions, political interference and lapses in governance and mismanagement over the recent years that could have placed the government-owned entity in jeopardy.

As it is, its RM8.03 billion in outstanding debts and major cashflow constraints along with the headline-grabbing arrests of several directors have smeared the reputation of the once potent economic and political force.

Felda will be exactly 63 years old this year and the white paper to be tabled in the Parliament today could not have come sooner as the statutory body strives to realise its commitment to its 112,635 settlers nationwide.

White papers are government-produced policy documents which set out proposals for future legislation and are opened for consultation with stakeholders before a bill is formally presented to the Parliament.

The Malaysian Reserve looks at the major developments surrounding Felda, as well as expected proposals to be included in the white paper.

The Eagle High Controversy

Felda’s controversial US$505.4 million (RM2.26 billion) stake acquisition in PT Eagle High Plantations Tbk in April 2017 resurfaced after a police report was lodged this week alleging that the government body was forced into entering the deal.

Its DG Datuk Dr Othman Omar, who filed the report on Monday, claimed that Datuk Seri Mohd Najib Razak, who was the prime minister (PM) and finance minister at the material time, directed Felda to purchase the 37% interest in the debt-saddled Indonesian planter.

Othman claimed that the order came after the acquisition was first floated to several government-linked plantation-based entities and was detailed in the Finance Ministry’s letter to Felda dated Dec 8, 2015.

Felda purchased the stake from Indonesia’s Rajawali Group, which is owned by Tan Sri Peter Sondakh whom Othman alleged to be a friend of Najib’s, via a special-purpose vehicle, FIC Properties Sdn Bhd — a unit under Felda’s investment arm Felda Investment Corp Sdn Bhd (FIC).

In a social media post, Najib said he asked the current government to disclose the “put option” in the agreement which would allow Felda to resell the 37% equity investment at the original price together with an accrued 6% annual interest.

“In other words, if we do not want to continue with the investment, we can reclaim all the money we paid together with the 6% annual interest (borne by Eagle High Plantations).

“This means, if the company is successful and palm oil prices recover, the investment will be more profitable. On the other hand, the government will still profit if we sell back (the interest) because the benefits we charged them are higher than our debt costs,” Najib wrote on his Facebook page yesterday.

The former PM called on the current government to reveal the purchase agreement in relation to the Eagle High Plantations’ stake acquisition.

This was before concluding that Felda is faced with mounting losses today on palm oil prices falling below the cost of production since the May elections last year.

From Felda Global Ventures to FGV

Felda Global Ventures Holdings Bhd was incorporated in 2007 as Felda’s commercial arm before it was listed on Bursa Malaysia on June 28, 2012, resulting in the transfer of 400,000ha of oil palm land to the former. It was renamed as FGV Holdings Bhd last year.

Felda raised RM5.5 billion from the FGV listing and now holds a 33.3% stake in the plantation company that paid approximately RM1.5 billion since 2012 to the former as per the land lease agreement.

The exercises should have resulted in substantial gains for Felda, but instead, the government body is faced with billions of ringgit in debt after years of questionable deals and mismanagement.

FGV was not without a controversy of its own which largely centred on the highly publicised feud between the company’s former chairman Tan Sri Mohd Isa Samad and CEO Datuk Zakaria Arshad.

The former called for Zakaria’s resignation for his alleged breaching of the company’s corporate governance code on May 31, 2017.

Zakaria was quick to defend himself and gave shareholders an ultimatum a week later, asking them to choose between the two to lead the company.

Both have since stepped down from the company and Mohd Isa is now under trial for allegedly accepting a bribe in relation to FIC’s RM160 million acquisition of Merdeka Palace Hotel and Suites back in 2014.

Mohd Isa was a director in FIC at the material time and is said to have received gratification totalling RM3.09 million to approve the purchase of the Kuching-based hotel asset.

He is now facing nine counts of corruption charges for the alleged offence, as well as one count of criminal breach of trust for approving the hotel acquisition without approval from the Felda board.

Another Felda deal that came under scrutiny was the £95.65 million (RM512.68 million) purchase of Grand Plaza Serviced Apartments in Bayswater, London, back in 2014, which is believed to be 70% above its 2013 market value.

Similarly, Felda is said to have overpaid £15 million for its £60 million acquisition of Grand Plaza Kensington Hotel also located in London.

It is understood that the Malaysian Anti-Corruption Commission has since investigated these deals but it is unclear at present if there is cause for legal action to be taken.

Felda’s Turnaround

Felda’s white paper will not only reveal the true state of the organisation’s finances as it is also expected to provide a guideline for the government-owned entity to turn a new leaf and re-align itself to its original mandate and obligation to rural settlers.

Economics Affairs Minister Datuk Seri Mohamed Azmin Ali said a draft of the white paper was first tabled in the Cabinet last Friday to address settlers’ concerns.

“The discussion was not just to review the financial crunch faced by Felda, but also steps to be taken to ensure the future of the settlers,” he was reported as saying yesterday.

The paper is expected to recommend a new business model for the management of Felda farms and guaranteed welfare aid for all settlers.

On the fiscal front, it was announced earlier that Felda will look to dispose of non-strategic assets to help strengthen its balance sheet, namely property assets in London, Sabah and Sarawak.

The properties were purchased at a total cost of RM2.2 billion, but varying market conditions and the need to pare down debt expediently will likely result in Felda disposing of these assets at a notable discount.

Felda also appointed a new management team in July last year who had engaged with several financial institutions to restructure the statutory body’s debt obligations.

It is unclear how effective these turnaround efforts will be in bringing Felda out of the doldrums and just how definitive the white paper tabled today will be.

Nonetheless, Felda will prove to be an important marker for the current administration’s ability to redress past government misdeeds, while avoiding the disintegration of a national emblem.