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Wednesday, April 19, 2017

Felda’s heady mix of politics and business



QUESTION TIME | Is Shahrir Samad fit to be chairperson of the Federal Land Development Authority or Felda? No. Simply because he is a politician, and as such has several axes to grind. On top of that he has very little experience with business - one cannot find a more unsuitable candidate to run a government business than a politician - even an ex-politician.
While Felda, which started in the 1950s as a scheme to open up land for settlers, is rather political with a reported up to 50 parliamentary seats within its settlements, at the heart it is a business as well - it buys and processes output from settlers, mainly oil palm fresh fruit bunches.
Shahrir’s appointment as chairperson of Felda in January comes some one-and-a-half years after he admitted receiving RM1 million from Prime Minister Najib Abdul Razak.
“To whom else can I ask financial assistance for administration expenses if not from the party president himself,” he said when commenting on an article by Sarawak Report which claimed he had received funds from Najib.
Telling as the admission was, nothing more was heard from that - no investigation, nothing. That he can ask the party president for money and get it sent to his account for “administration expenses” is okay.
Shahrir must be close to the PM to be appointed chairperson of Felda, replacing Isa Abdul Samad, who was once suspended from Umno for money politics. Isa however remains chairperson of listed Felda Global Ventures Holdings or FGV. Felda effectively held about 31 percent of FGV as at March 18 last year, according to FGV’s 2015 annual report.
In a recent interview with The Star, Shahrir said that he wanted greater returns from FGV and another Felda company Felda Investment Corp (FIC) in which Felda had invested RM2 billion.
According to him, FGV contributes about RM300 million to Felda annually, including RM250mil under a land lease agreement while the returns from the FIC are a far cry from what other government-owned funds are contributing.
Shahrir said that he wanted to see FGV go back to its core competency in managing plantations and improving returns to its shareholders.
“The returns can be improved. We used to own the plantations (currently held by FGV) and we know what kind of returns that can be given to the shareholders. They have to look at ways to improve. They can collaborate with other plantation companies to increase profits. As the major shareholder we want to see better returns.”
A major indictment
This is actually a major indictment of the chairperson of FGV, Isa. There is more in store for Isa.
On the FIC, Shahrir said that the RM2 billion invested, was not giving the desired returns after three years of underperformance since being incorporated in 2013. For that entire period Isa was chairperson of Felda. FIC has investments in hotels, properties and listed-companies.
So upset was Shahrir with this that he made changes to the board of FIC and asked the previous board to resign due to the company’s disappointing performance. He did no such thing for FGV, though.
Yes, it’s true, FGV had been going on a buying spree ever since it was listed in 2012 and pretty much used up most of the RM4.5 billion it raised in June 2012 from its initial public offering (IPO) as this article from KINIBIZ shows.
By the time FGV made its proposal for its most controversial deal some two years later, it had just RM446 million left, barely 10 percent of its IPO proceeds. If FGV was to have gone ahead with its purchase of a non-controlling 37 percent stake in Indonesia’s Eagle High Plantations for a massive US$680 million or about RM3 billion, it would have had to borrow money!
But as the KINIBIZ article pointed out, there was a huge backlash against the proposed purchase, which was being bought at a huge premium of 70 percent to the then market price which had already been inflated by earlier questionable deals. Following the announcement, FGV shares fell by as much as 40 percent.
Despite Prime Minister Najib’s urging that the deal was a good one, FGV eventually withdrew from the deal but guess who took it over, yes Felda. And guess who is supporting the deal - yes, Shahrir - the same Shahrir who wants Felda’s investments via FGV and FIC to give better returns!
True, Felda is paying significantly less, but still a substantial US$505 million, about a quarter lower at some RM2.26 billion. It is still a huge premium to the market price of over 50 percent, and as pointed out previously a share price that had already been inflated by deals.
What is interesting is who Felda is buying from - the Rajawali group of Indonesia. Peter Sondakh is the founder and owner of the Rajawali group, and is also the ninth richest man in Indonesia, according to Forbes.
Said to be part of Najib’s inner circle
Sondakh is also said to be part of Najib’s inner circle and has served as Najib’s adviser on Indonesian affairs, according to the KINIBIZ article .
It should be noted that the Rajawali group, still under the control of Sondakh, who was conferred a Tan Sri title in June 2009, had previously completed its acquisition of Eagle High, previously PT BW Plantation Tbk, in the final quarter of 2014.
There had been media reports that Rajawali would try to acquire BW earlier in 2014, however, this was later shot down as false by BW Plantation. Then, in September 2014, BW Plantation made an announcement to the Indonesia Stock Exchange that Rajawali was the new owner of 21.55 percent of the company.
Rajawali had become the owner of BW Plantation through the acquisition of two British Virgin Islands firms, Matacuna Group and Pegasus CP One, which were in control of that 21.55 percent stake. In the media report, Rajawali also declined to comment on how much it had put down for Matacuna and Pegasus.
Effectively, the Eagle High deal was aborted by FGV in Dec 2016 and it is now being undertaken by Felda Investment Corporation Property (FICP), a wholly-owned subsidiary of Felda.
In Malaysia, the Rajawali Group has interests in hotels such as the Westin Hotel Resort and Spa Langkawi and St Regis Langkawi. The latter is a joint venture with the Finance Ministry, which has given rise to his close relationship with Najib, The Star reported in June 2015.
Shahrir defended the deal, saying Felda was paying a lower price than FGV. But considering that the deal was tainted and many questions raised over the high price still, it would have been better to abort the deal altogether.
Paying a 50 percent premium over market price may mean that at some point Felda may have to take a mark down in the value of its investments - not a move that will raise returns for Felda.
Felda did make a lot of money from FGV’s listing though. It effectively sold down some 60 percent at a price of RM4.55 which should have raised some RM10 billion, but Felda’s website gives no proper accounting of that money. Some RM1.7 billion was paid out to settlers, Felda did go on a buying spree but there is no disclosure of where all the money is.
Also, Felda’s effective stake in FGV has been steadily whittled down to around 31 percent based on figures as at Mar 2016 given in its annual report for 2015 from 40 percent at the time of listing in June 2012. This means it has been selling FGV shares which should have raised quite a bit of money.
However, since listing, Felda’s remaining 31 percent stake in FGV has been on a steady decline - at its current price of around RM2 a share, it has lost a massive RM4 billion from its value at listing of RM6.5 billion at an opening price in the market of RM5.30. That’s a decline of over 60 percent!
A lot more is known about FGV because it is publicly listed but there is little that is known about Felda and its complicated structures. It’s possible to hide a whole lot of skeletons in there, especially when accounting rules make it possible to delay the markdown in the value of associates, defined as companies in which a stake of at least 20 percent is held and where there is management representation.
It is highly unlikely that a politician beholden to his master, from whom he received RM1 million, would uncover all of them and put long-standing wrongs right. A professional would do better - if he is given the freedom to do so.

P GUNASEGARAM says there is a multitude of sins hidden behind the facade of many government corporations and statutory bodies. E-mail: t.p.guna@gmail.com.- Mkini

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