EXPLAIN! Why did Felda overpay RM100 MILLION for London property & WHO BENEFITED?

Felda should justify inflated prices for its RM500 million London hotels in overpaying RM100 millon and openly defying one of the main thrusts of the Federal government’s Economic Transformation Plan(ETP) of divestment of non-core assets.

An online portal today reported that Felda's £97.9 million (RM495 million) deal for the 198-unit Grand Plaza service apartments in Bayswater, London is overpriced when high-end real estate agents Savills and Knight Frank had only valued the property at £80 million (RM408 million) in the past few years. In other words Felda overpaid by nearly RM100 million!

This has raised fears that any economic downturn would cause state-linked Malaysian firms buying up London properties at inflated prices to lose tens of millions of pounds in public funds. Felda has neither prior expertise nor intimate knowledge whatsoever in running hotels. To-date both Felda and the Federal government has refused to explain how Felda hopes to turn in a profit over and above the cost of its RM500 million London hotel investments.

When I raised this in Parliament on Monday, the government refused to reply how Felda can earn a high enough rate of return to recoup their investment, beyond saying that the market value of the London hotel has now increased to 115 million pounds from the 98 million pounds initial investment. Again there was no proof that the market value of the London hotel has increased to 115 million pounds.

The lack of intimate knowledge and management expertise in running a  business is the fundamental reason for ETP’s divestment policy. After taking over Penang in 2008, we were shocked that the state government and its subsidiaries were heavily involved in non-core activities which it has no expertise such as operating oil palms, rubber plantations, rearing fish farms, running hotels, educational colleges and even a golf course. All these ill-considered ventures were making losses.

Through a policy of divestment and outsourcing through open competitive tenders, these heavy annual operating losses were turned instead into yearly profits. However these operating losses could be quickly turned into profits because the properties were already owned by the state government. In other words there was no capital expenditure(capex) involved.

With the RM500 million capex by Felda, it is unlikely that even if Felda make profits, the profits will justify the cost of investment. For this reason, BN leaders should not treat public monies as their private holdings but justify in the interests of accountability and transparency, the financial benefits of investing in non-core businesses to the people.

Lim Guan Eng is the DAP sec-gen & MP for Bagan