Huge premium, PT Eagle High investment flop is back to haunt FELDA amid MACC clamp down

 

TOTAL impairment/value loss of RM1.576 bil recorded in 2017 from investment in Jakarta Stock Exchange-listed PT Eagle High Plantations Tbk (EHP) stands out as perhaps the largest single financial missteps by FELDA with potential losses estimated at up to RM2.5 bil.

This deemed paper loss encapsulates the latest series of Malaysian Anti-Corruption Commission’s (MACC) clamp down on financial irregularities and misappropriation of funds linked to mismanagement within the Federal Land Development Authority.

The graft buster’s chief commissioner Datuk Seri Abd Halim Aman did not rule out the possibility of several individuals getting detained gradually starting this week in connection with allegations of misappropriation, abuse of power and corruption involving FELDA’s subsidiaries.

Thus far, Sinar Harian reported that seven investigation papers have been opened with a dozen individuals having been called in to assist with on-going probe even as that concerning the Lembaga Tabung Haji Royal Commission of Inquiry (RCI) report is still unfolding.

That Prime Minister Datuk Seri Anwar Ibrahim did not mince his words that wrongdoings within FELDA will be exposed in coming weeks has seen a swift follow-up action with the MACC arresting a former general manager of a statutory body who holds the title of “Datuk” alongside another man on Sunday (Sept 6).

Both men, aged in their 50s and 60s, were arrested around 4pm after they arrived at MACC’s Putrajaya headquarters to give their statements.

Colossal loss

Politically-motivated or otherwise, former Sarawak PKR strategy director Iswardy Morni has recapped a list of misappropriations, governance imbalances and major loss incurred by the FELDA Group based on the official findings of the FELDA White Paper (2019) and the Ernst & Young Forensic Audit Report.

Editor’s Note: The Big Four accounting firm conducted forensic audits on eight acquisitions by FELDA and Felda Investment Corp (FIC) Sdn Bhd from January 2010 to December 2018.

As revealed by EY, the FELDA Group incurred a net loss of RM4.9 bil in 2017 from a profit of RM5.8 bil in 2012.

This led to depreciation of cash reserves (2007-2017) from RM2.4 bil to RM400 mil while total liabilities/debt (2017) climbed to a staggering RM14.4 bil (including bank/institutional financial loans amounting to RM12.1 bil).

Below are losses and misappropriations incurred by the eight forensic audit projects:

1. PT Eagle High Plantations Tbk, Indonesia

• Original total investment: USD505.4 mil (approx RM2.26 bil funded by GOVCO loans).
• Form of misappropriation: Purchased at a price 95.86% higher than the original market price without a reasonable credit valuation of the seller.
• Total impairment/value loss: RM1.576 bil (recorded in 2017).

2. Kuala Lumpur Vertical City (KLVC), Jalan Semarak

• Land valuation: RM618 mil (estimated commercial valuation reaching RM1.062 bil).
• Form of misappropriation: Ownership rights of 24 FELDA land lots were transferred to the developer (Synergy Promenade Sdn Bhd ) using a Power of Attorney (POA) without the knowledge/approval of the FELDA board of directors.
• Additional liability risk: FELDA is bound by lease agreement commitments for office space of at least RM1.5 bil for a period of 20 years.

3. Park City Grand Plaza Kensington (GPK Hotel), London

• Total investment/payment: £60 mil.
• Form of misappropriation: No direct Sale and Purchase Agreement (S&P) between FIC and the original owner (original land price was only £P46 mil). The remaining £14 mil was paid through the purchase of shares in an offshore company (BVI) in the personal name of a director.
• Total value loss: At least £34 mil (approx RM203.39 mil) when the fair value plummeted to £26 mil.

4. Merdeka Palace Hotel & Suites, Kuching

• Original purchase price: RM160 mil.
• Form of misappropriation: Purchased above market price without FELDA board of directors’ approval in addition to involving a bribery case with RM3.09 mil in kickbacks.
• Total loss/value impairment: RM80 mil (fair value dropped to RM80 mil in 2017).

5. Dataran Aras Sdn Bhd (DASB), Sarawak

• Original purchase cost: RM148.2 mil.
• Form of misappropriation: Land cannot be developed because 54% consists of Native Customary Rights (NCR) Bumiputera land. This issue was concealed from the FELDA board of directors.
• Total value impairment: RM146 mil (recorded in 2017).

6. Felda Wellness Corporation Sdn Bhd (FWC)

• Total FELDA fund injection: RM102 mil.
• Form of misappropriation: Fund injections were made without FELDA board of directors’ authorisation. Invested RM24.1 mil in an overseas company without approval, vendor assignments without tender (RM119.6 mil) and payments of RM13.11 mil without proof of services.
• Total value impairment/net liabilities: RM191 mil (including unpaid debts and court claims).

7. Grand Plaza Serviced Apartments (GPSA), London

• Original total investment: £98 mil.
• Form of misappropriation: Management paid an exclusivity fee of £980,000 without approval. There is a discrepancy of £14.3 mil from the amount paid by FELDA compared to the proceeds received by the original owner. Operations incur an average annual loss of RM19.82 mil.

8. Felda House & Grand Felda House (DEX), Wembley

• Total acquisition cost: £167.76 mil (approx RM883 mil).
• Form of misappropriation: Transaction was conducted through a BVI company (Treax Innovation Ltd) established in the personal name of two former FIC directors without approval. Actual costs escalated by £4.76 mi lcompared to the approved amount. –   Focus Malaysia