FEDERAL Land Development Authority (Felda), which has been hit by losses in billions and liquidation of several subsidiary companies, is confident of returning to the black by financial year 2022 through the implementation of a new business model.
Its chairman Datuk Seri Idris Jusoh said following the presentation of a white paper on Felda in Parliament on April 10, 2019, a task force led by Tan Sri Abdul Wahid Omar was formed to look into ways to enhance the white paper’s inadequacy to address various issues besetting the agency.
“We have identified the way forward by understanding our present and the past, and had come up with a new business model to make the agency more sustainable, profitable and independent.
“The task force had proposed financial restructuring and improvisation of management system, which include digitalisation of the financial system, changing the mindset of settlers, gearing them to achieve high income, as well as cost-cutting exercise,” he explained.
On the new business model, Idris noted Felda believed the right business model for the agency moving forward was to have a complete supply chain from farms, mills to downstream.
“Before FGV Holdings Bhd was listed on Bursa Malaysia, we already had our own mills. During that time, Felda registered over RM1 billion profit of which about RM1.85 billion profit was posted in 2011.
“However, after the listing of FGV Holdings Bhd in June 2012, Felda’s earnings obviously declined as the returns from FGV investment did not commensurate with what was expected from them,” he pointed out.
FGV was listed on the main board of Bursa Malaysia on June 28, 2012 at RM4.45 a share, making it the world’s second largest initial public offering after Facebook, raising about RM10.5 billion.
According to the white paper, Felda made a net profit of between RM200 million and RM1.1 billion annually between 2007 and 2011. This was against a net loss of RM4.9 billion recorded by the troubled plantation giant in 2017.
Under the Land Lease Agreement (LLA) between Felda and FGV, Felda should receive a payment of RM248 million per year and profit share of 15 per cent for lease of its commercial land for a course of 99 years.
To achieve the goal of returning Felda to profitability, Idris highlighted that the agency intended to take back 350,000 hectares of Felda-owned land leased to FGV under the LLA.
He stated the wish had been discussed with the government and Felda was still awaiting the answer.
“When the LLA was entered into, there were conditions stating that Felda can take back the land at any time by giving them (FGV) 18 months’ land acquisition notice.
“We want to take back the land to re-empower Felda. The income derived from Felda plantations’ profits before the listing exceeded RM1 billion, so making a billion is no big deal… it can be made, however, the income dwindled since 2012 following FGV’s listing,” he remarked.
On the compensation to be paid to FGV with the termination of the LLA, Idris observed it had not been discussed in detail, but what’s clear was that Felda’s priority at this time was to take back the leased land and create a complete supply chain.
He said Felda’s lack of income after the listing of FGV had also forced the agency to take loans from financial institutions in 2014.
Felda’s debt currently amounts to RM10 billion, which was incurred to provide cash advances to settlers and for replanting purposes.
As an alternative to debt restructuring, Idris noted Felda intended to issue Sukuk and this would be discussed with the government as the guarantor and the amount to be issued would be announced later.
He added the new Felda model also touched on reducing the repayment period of the replanting loans for settlers from eight to four years.
“This measure has been implemented to reduce the debt burden of the settlers and make them more sustainable and competitive.
“We have identified new seeds that can be harvested within 35 months and are able to produce a yield of 25 tonnes per hectare, as well as increase the oil extraction rate (of 23 per cent).
“This will help shorten the loan repayment period, as well as provide subsistence aid to the settlers,” he pointed out.
Idris also mentioned that Felda intended to encourage settlers to engage in cash crop cultivation on their farms to diversify their income streams.
As for Felda’s financial restructuring, he said the agency was also looking at liquidating its non-core assets locally and abroad, particularly hotels, which had been put on hold due the current low price and would continue the exercise once the price was right.
On Felda’s 37 per cent stake in PT Eagle High Plantations TPK (Eagle High) valued at RM2.3 billion, the chairman announced Felda intended to exercise its put option in May 2022 to get back its investment.
“Besides that, we will also increase the capacity of Koperasi Permodalan Felda (KPF) by placing Walmart Inc and Fonterra Co-operative Group Ltd as benchmarks,” he said.
Walmart Inc is an American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores, headquartered in Bentonville, Arkansas, while Fonterra is a multinational New Zealand-based cooperative owned by 10,500 farmers and their families.
“KPF, in the previous year, was able to pay dividends and provide high income to its members and paid dividends of more than 15 per cent in 2011.
“We want to return to this kind of capability to continue to improve the socio-economic status of each of its members.” – Oct 18, 2020, Bernama