Felda’s landbank in Indonesia ‘worthless’

EPF, major investor in FGV, doesn’t think that the group’s foray into Indonesia is a good idea.

KUALA LUMPUR: Eagle High Plantations (EHP), Felda Global Ventures’ (FGV) Indonesian partner, may have a large land bank, concedes Serdang MP Ong Kian Ming, but the licenses to develop the unplanted land bank have not all been approved. “Also, EHP may not be able to find enough customers if its planting policies in these areas are not in accordance with recognised standards of sustainability.”

Already, EPF which is a major investor in FGV, has expressed its strong reservations of the group’s foray into Indonesia, according to a statement carried in The Malaysian Insider, an online news portal.

In a report that was published on November 20, 2014 by Chain Reaction Research (CRR), a Washington DC based environmental risk analysis research outfit, said Ong, “the reverse takeover of BW Plantation by the Rajawali Group was classified as a ‘high risk’ venture”.

The CRR report was further proof that FGV was overpaying for its 37 per cent stake in EHP and that FGV’s shareholders – the Felda settlers and the general public besides institutions like the EPF, among others – will end up paying for the mistakes of FGV’s management and board of directors, he added.

Did FGV buy into a ‘high risk’ asset in Eagle High Plantations?

He was commenting in a new take on FGV’s announcement last Friday that it would be buying 37 per cent of EHP for around RM2.6 billion in cash and FGV stock. “Among some of the reasons given by FGV for this purchase was increasing its exposure to non-Land Lease Agreement (LLA) land banks and a significant greenfield land bank expansion potential in Indonesia via this acquisition”.

EHP does indeed have a large land bank of 419,000 hectares, he conceded again. “Its 147,000 hectares of planted palm oil makes it the third largest palm oil company listed on the Indonesian Stock Exchange.”

“But what FGV has not come out to say thus far was the potential challenges and costs associated with developing this large unplanted land bank.”

Among the risks cited in the CRR report, he recalled, was that “for 70 per cent of its land bank, permits are not yet secured to start oil palm planting, and it was far from certain that they will be” as well as serious concerns “in relation to peatland development, deforestation and encroachment into orang utan impact areas” which may affect its main customers who are committed to the “No Deforestation, No Peatland, No Exploitation” policy.”

Two-thirds of EHP’s land bank was unplanted and most of this was from the Green Eagle and additional Rajawali land bank that was injected into BW Plantation as part of Rajawali’s reverse takeover exercise conducted in November 2014.

The Chain Reaction Research report further states that for the unplanted land bank, the “licensing process was still in a very preliminary stage: there was only a location permit (Ijin Lokasi). Location permits have a legal expiration date, and often these permits are not converted into real plantation development rights. Unlike many similar reports, BW Plantation’s prospectus does not provide details on the prospects of the unplanted land bank actually being developed. As the valuation of Green Eagle Holdings was mainly based on the potential of its unplanted land bank, this lack of disclosure should be of serious concern to shareholders of BW Plantation.”

The report also shows, said Ong, that 40 per cent of BW Plantation sales in 2014 were to Golden Agri-Resources and Willmar, both of which have publicly committed to the “No Deforestation, No Peatland, No Exploitation” policy.