Felda: Govt approves RM9.9b sukuk to settle debt

The sukuk represents the 1st phase of Felda’s turnaround plan, which also includes the termination of Felda’s 99-year LLA with FGV

by SHAHEERA AZNAM SHAH / pic by MUHD AMIN NAHARUL

THE Cabinet has approved the issuance of a government-backed sukuk worth RM9.9 billion that would allow the Federal Land Development Authority (Felda) to restructure its debt.

It is understood that the sukuk represents the first phase of Felda’s turnaround plan, which also includes the termination of Felda’s 99-year land lease agreement (LLA) with FGV Holdings Bhd.

Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed in a statement on Wednesday described the issuance of the Islamic bonds as an “essential move” to help the agency settle its debts, which currently amount to RM10.6 billion. He said the restructuring measures could see the state agency’s financial position return to positive territory beginning 2023.

“The execution of the plan will be monitored in detail by a taskforce that will report directly to the prime minister,” Mustapa said.

The move comes on top of the government’s RM6.23 billion injection into Felda last year to restructure and delay some repayments of the latter’s borrowings.

He attributed Felda’s debt to a decline in revenue, particularly the lower share of profits from the 351,000ha of land it leased to FGV.

The LLA has been an increasingly sore point for Felda and FGV as profits tumble from low crude palm oil prices. The 99-year deal forces Felda to settle on a fixed annual income payment of RM250 million from FGV plus 15% shares of profits.

Prior to the agreement, Felda’s net income stood as high as RM1.1 billion, while revenue went up to RM5.9 billion from 2007 until 2011. Felda has not recorded a single profit since FGV went public in 2012. Its net loss widened up to RM5.7 billion in 2018, while turnover continues to hit below the RM2 billion mark.

The LLA termination comes amid a proposal to inject 132,940ha of oil palm land owned by Perspective Lane (M) Sdn Bhd into FGV’s existing plantation, which would maintain FGV’s position as one of the largest palm oil producers even without Felda’s land parcels.

Perspective Lane — which owns Central Sugars Refinery Sdn Bhd (CSR) apart from Padiberas Nasional Bhd and Tradewinds Plantation Bhd — is also expected to include its sugar business to sweeten the deal as FGV tries to revive its loss-making 51% stake in MSM Malaysia Holdings Bhd. If the deal follows through, Perspective Lane would become the single-largest shareholder in FGV. Felda is currently FGV’s largest shareholder with a 33.66% stake.

Meanwhile, FGV stated that it has yet to receive a written notice from Felda regarding the termination of the LLA, but has prepared its businesses and operations for this eventuality.

In a statement yesterday, FGV said once it receives an official notice from Felda required under the LLA, it will follow the procedures outlined in the LLA to start the process of termination and determine the compensation due to FGV, which will take 18 months to complete.

“As the LLA termination has always been a much-talked about scenario, FGV has already prepared its businesses and operations for this eventuality,” the company said.

FGV said its overall long-term strategy, which is to further grow and strengthen its high value-add business activities focusing on food and branded consumer products, remains intact and may potentially be expedited to provide higher expected returns to shareholders as the result of the LLA termination.

“FGV will at all times safeguard the interests of FGV’s shareholders and we will make the relevant announcements at the appropriate time in the event of material development on this matter.”

The LLA refers to Felda-owned estates totalling 350,733ha that were leased to FGV for 99 years beginning Nov 1, 2011.

According to FGV, the expected compensation amount due to the company as a result of the LLA termination may range between RM3.5 billion and RM4.3 billion based on internal assessment which will vary depending on FGV’s financial performance for 2020 and 2021, and various other factors.

FGV assured that its plantation supply chain remains intact as the LLA estates only represent 30% of the fresh fruit bunches that are processed at the group’s 68 palm oil mills.