Cover Story: Government agency worse off than before FGV listing

-A +A
This article first appeared in The Edge Malaysia Weekly, on January 2 - 8, 2017.


THE Federal Land Development Authority (FELDA) seems to be worse off, from a financial perspective, than before the listing of Felda Global Ventures Holdings Bhd (FGV) in June 2012.

According to its annual reports, FELDA suffered net losses for two consecutive fiscal years up to its financial year ended Dec 31, 2014. Its annual report for FY2015 is not available yet.

At group level, FELDA saw its net loss narrow to RM1.04 billion in FY2014, from RM1.99 billion in FY2013.

These losses resulted in FELDA’s accumulated fund shrinking 16.46% to RM13.47 billion in FY2014, from RM16.12 billion in FY2012.

A decline in profit had been expected following the listing of FGV because FELDA’s commercial units — including the group’s cash cow and most lucrative unit, Felda Holdings Bhd — were parked under the listed company. But FELDA slipped into the red after being profitable in FY2012 and FY2011.

FELDA had a 49% stake in Felda Holdings in FY2011.

Just before the listing, eight settlers failed in their bid to prevent Koperasi Permodalan Felda (KPF) from disposing of its 51% equity  interest in FGV. The court case forced FGV to list without fully consolidating Felda Holdings. It then acquired the 51% equity interest from KPF in 2013 for RM2.2 billion.

A major factor that dragged down FELDA’s bottom line in FY2013 and FY2014 was an item listed in its financial statement as “other expenses”, which amounted to RM3.17 billion and RM2.45 billion, respectively. The bulk of these expenses was for replanting programmes and socioeconomic activities for settlers, and salaries, bonuses and allowances for the staff.

For instance, FELDA spent RM729.42 million on replanting programmes in FY2014; the sum made up 30% of “other expenses” for that fiscal year. A further RM241.26 million was used for settlers’ socio-economic activities, and RM259.83 million for staff salaries, bonuses and allowances.

These were not extraordinary expenses that emerged after FY2013; in fact, FELDA booked substantial amounts under this category in FY2011 and FY2012.

However, the statutory body managed to maintain a positive bottom line in those two fiscal years by registering profits from discontinued business operations in FY2011 and FY2012.

In FY2012, FELDA booked a profit of RM6.95 billion arising from a land lease agreement (LLA) it entered into with FGV.

In 2012, FELDA had some 850,000ha of land, of which 475,000ha were allocated to settlers. The remaining 355,000ha were leased to FGV for 99 years under the said LLA.

Under the LLA, FGV has to pay FELDA a fixed sum of RM250 million annually — subject to revision every two decades — and 15% of operating profit generated from the leased land.

Apart from that, FELDA also booked a profit of RM1.59 billion in FY2011 from discontinued business operations.

Without profit contribution from these two sources, FELDA saw income deficits of RM1.13 billion in FY2012, and RM1.35 billion in FY2011.

Nevertheless, one might ask about the dividend from FGV, given FELDA’s 20% stake in the listed company. FELDA received RM116.74 million in the form of dividends from FGV in FY2014, a slight increase from the RM112 million in FY2013.

FELDA’s lower income is reflected on its balance sheet. The combination of its cash in hand and fixed deposits in bank decreased to RM434.46 million in FY2014, from RM936.08 million the year before.

Part of its fixed deposits had been placed in banks in order for FELDA to obtain external borrowings.

The group’s non-current borrowings from external institutions totalled RM6.07 billion as at FY2014, up from RM5.15 billion previously. Its short-term loans almost tripled to RM1.7 billion, from RM574.05 million as at FY2013.

FELDA’s net gearing worsened from 0.26 times in FY2013 to 0.41 times in FY2014.

The increase in borrowings also means higher finance costs every year.

FELDA’s financial position in FY2015 remains unknown to the public because it has yet to present its annual report for that fiscal year to Parliament.