KUALA LUMPUR: The beleaguered Federal Land Development Authority (Felda), which has been hit by billion-ringgit losses and liquidation of several subsidiary companies, is confident of returning to the black by the financial year 2022 through the implementation of a new business model.
Chairman Idris Jusoh said following the presentation of a white paper on Felda in Parliament on April 10, 2019, a task force led by former minister Abdul Wahid Omar was formed to look into ways to address various issues besetting the agency.
“We have now identified the way forward by understanding where we are now and the past. We have come up with a new business model.
“The task force had also proposed financial restructuring, how the management system can be improved, including digitalisation of the financial system, changing the mindset of settlers by gearing them to achieve higher income, as well as a cost-cutting exercise,” he told Bernama.
Idris said Felda believed the right business model for the agency is to have a complete supply chain from farms or mills to downstream.
“Before FGV Holdings Bhd was listed on Bursa Malaysia, we already had our own mills. During that time, Felda registered profit of over RM1 billion, with RM1.85 billion profit registered in 2011.
“However, after the listing of FGV Holdings Bhd in June 2012, Felda’s earnings obviously declined. The returns from the FGV investment did not commensurate with what was expected from them,” he said.
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 IPO 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 a profit share of 15% for lease of its commercial land for 99 years.
Felda wants to take back 350,000ha leased to FGV
To achieve its goal of returning Felda to profitability, Idris said the agency intended to take back 350,000ha of Felda-owned land leased to FGV under the LLA.
He said this 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 profits from Felda plantations before the listing exceeded RM1 billion. Making a billion is no big deal … it can be done. However, the income has dwindled since 2012 following FGV’s listing,” he said.
On the compensation to be paid to FGV with the termination of the LLA, Idris said it had not been discussed in detail. But what was clear was that Felda’s priority at this time is to take back the leased land and create a complete supply chain.
Idris 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 said Felda intends to issue sukuk and this will be discussed with the government, with the guarantor and the amount to be issued announced later.
He said the new Felda model also touched on reducing the repayment period for 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, he added.
New seeds for planting of high-yield oil palm
“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%).
“This will help shorten the loan repayment period as well as subsistence aid to the settlers.”
Idris said Felda also intended to encourage settlers to engage in cash crop cultivation on their farms to diversify their income streams, which will indirectly increase their income.
As for Felda’s financial restructuring, he said Felda is also looking at liquidating its non-core assets locally and abroad, particularly hotels.
This measure has been put on hold due the current low price but will be taken up once the price is right.
On Felda’s 37% stake in PT Eagle High Plantations TPK (Eagle High), valued at RM2.3 billion, he said 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 our benchmarks,” he said.
Walmart Inc is an American multinational retail corporation that operates a chain of hypermarkets, discount department stores and grocery stores, with headquarters in Bentonville, Arkansas. Fonterra is a multinational New Zealand-based cooperative owned by 10,500 farmers and their families.
“KPF, in the previous year, was able to provide high income to its members and paid dividends of more than 15% in 2011.
“We want to return to that kind of capability to continue improving the socio-economic status of each of the members,” Idris added.