Will Felda take FGV private?

A special task force has been formed to identify ways to ensure Felda is financially self-reliant and sustainable for the benefit of the entire settler community

pic by MUHD AMIN NAHARUL

TALKS of taking FGV Holdings Bhd private have resurfaced after Prime Minister (PM) Tan Sri Muhyiddin Yassin announced plans to give new life to the Federal Land Development Authority’s (Felda) financial position.

Minister in the PM’s Department (Economy) Datuk Seri Mustapa Mohamed yesterday told the Dewan Rakyat that a special task force chaired by Tan Sri Abdul Wahid Omar has been formed to identify ways to ensure Felda is financially self-reliant and sustainable for the benefit of the entire settler community.

“This team had conducted engagement sessions with Felda’s board of directors, management team, FGV Holdings Bhd and various stakeholder groups for their views and feedback on how to resolve issues related to Felda,” he said.

Mustapa said the team is expected to present a report next month, but sources familiar with the matter said it would likely include proposals to take its listed arm private.

“The forces to take FGV private are much stronger than ever. Whether it happens or not, it all depends on the government,” one source said, in reference to bottom-up pressures from Felda and non-governmental organisations representing settlers — crucial Malay votes for Umno.

The state-owned agency has been struggling to post any profit since FGV went public in 2012.

Hundreds of thousands of settlers, who took loans to invest in FGV, had then reaped benefits from the strong debut. Its first day of trading ended at a premium of 20% over the issue price of RM4.55.

However, corruption allegations, poor management and weak crude palm oil prices have since caused its share price to slump. FGV shares last traded 0.89% higher at RM1.13 yesterday.

The Employees Provident Fund, which was among the first key investors at FGV, ceased to be a shareholder in 2016.

Felda’s net income prior to FGV’s listing stood as high as RM1.1 billion, with revenue going up to RM5.9 billion from 2007 until 2011.

Its debt ratio stood at 0.27 time, while its cash position ranged between RM1.8 billion and RM3.9 billion. Its income was primarily generated from lands it owned.

Post-IPO, Felda recorded straight losses with its biggest amounting to RM4.9 billion from 2013 to 2017.

Turnover ranged between RM200 million and RM700 million, while its debt ratio stood at 1.15 times. Its cash position has vaporised to RM400 million as of end-2017.

Felda has since had to rely on FGV’s fixed fee of RM248 million each year, plus 15% of operating profits from land FGV leased from Felda.

A move to privatise FGV could pave way to resolve some financial issues at Felda, potentially by selling off some assets and repurposing FGV’s 439,725ha landbank — of which 80% are leased from Felda. However, the challenge to take FGV private has always been its price tag.

Felda owns about 33.6% in FGV, which translates into a market value of RM1.38 billion. The value of the remaining shares, based on the company’s share price at close yesterday, would be RM2.74 billion.

However, given that FGV’s IPO was RM4.55 per share, the value could rise to RM16.6 billion — not inclusive of any premium.

The final amount could be less if Felda can work out an agreement with Koperasi Permodalan Felda, which owns a 5.2% stake, and other state-linked entities.

FGV’s shareholders also include Urusharta Jamaah Sdn Bhd with 7.78%, the Retirement Fund Inc (6.62%) and the Armed Forces Fund Board (1.25%), according to its annual report.

The federal government in April last year tabled a White Paper in Parliament which detailed Felda’s troubles and accounts of alleged graft.

The plan was to inject government capital worth RM6.23 billion to help trim its debts, which stood at RM8.03 billion in mid-2018.

It is worth noting that the financial aid includes RM2.5 billion in guarantees to restructure Felda’s debt.

Measures to help Felda recover also included a postponement to a principal payment on its RM1.98 billion debt in 2019.

The balance of RM9.3 billion will be rescheduled for repayment from 2020 to 2028. It said Felda may also need to put up its non-strategic assets for sale.

Mustapa said Felda was in talks with the Finance Ministry on the issuance of government-backed sukuk to help restructure its debt.

It is not clear if the sukuk is part of the RM2.5 billion guarantees stated earlier.