KUALA LUMPUR (May 11): Felda's wholly-owned unit FIC Properties Sdn Bhd (FICP) has exercised its put option to sell a 37% stake in loss-making PT Eagle High Plantation Tbk back to the Rajawali Group.

The option entails either PT Rajawali Capital International or PT Rajawali Corpora buying back the 37% stake in Eagle High that was sold to FICP for US$505.4 million (around RM2.2 billion), with 6% interest per annum from May 11, 2017 to the date of full payment.

The put option is exercisable from the fifth anniversary of the transaction.

In a statement, Felda said FICP exercised the put option "to fully safeguard its rights and interests".

"Felda is confident that the exercise of the put option by FICP today is a prudent business decision driven by sound corporate governance principles. The decision also serves as one of the initiatives to establish a leaner and more sustainable business model for the Felda Group," it said.

The ball seems to be now in Rajawali's court to honour its obligations under Felda's put option, which has been a contention between the two parties since Felda's attempt to exit the investment three years ago.

In April 2019, economic affairs minister Datuk Seri Mohamed Azmin Ali told the Dewan Rakyat that RM1.58 billion or 71% of the original investment had been impaired. Comparatively, Eagle High had lost 87.24% in market value to-date versus Felda's acquisition price.

"There is no proof to show that Felda's board and management have conducted due diligence or credit assessment for the year 2016 on the original owner of Eagle High to ensure its ability to pay back Felda's investment in the stake through the put option," Mohamed Azmin told the Dewan Rakyat when tabling Felda's white paper.

Felda's early attempt to exercise the put option in 2019 was "resisted" by Rajawali, Mohamed Azmin said, resulting in Felda bringing the matter to the Singapore International Arbitration Centre.

In response, Rajawali's managing director Satrio Tjai in April 2019 told The Edge that the group had "more than enough capabilities" to honour its obligations under the put option.

"If the put option is properly exercised, for example, to be exercised at Felda's sole and absolute discretion on the fifth anniversary of the completion date — May 11, 2022 — Rajawali will honour its obligations," he explained then.

Felda bought the 37% stake in Eagle High soon after its listed associate FGV Holdings Bhd called off a plan to acquire the same block of shares at a US$632 million price tag.

Rajawali, which retains a majority stake in Eagle High, is controlled by tycoon Tan Sri Peter Sondakh, a known associate of Malaysia's former prime minister Datuk Seri Najib Razak.

Critics at the time questioned Felda's acquisition, as the final price tag of US$505.4 million or 580 Indonesian rupiah per share was at a 95.86% premium to the market value of Eagle High then.

The plantation group's shares were trading at 74 Indonesian rupiah at the time of writing.

In December 2016, Felda's management justified to The Edge that the valuation used was at US$16,000 enterprise value per hectare, which "compares favourably with recent transactions involving Indonesian palm oil companies".

It also described it as "the last opportunity" to acquire an Indonesian plantation with a large land bank, and pointed to Eagle High's average tree age of seven years versus Felda's 15 years then.

However, the company has failed to turn around and has bled for seven consecutive years. Despite high crude palm oil prices, it suffered a net loss of US$15.1 million from US$51.9 million in revenue in the first quarter ended March 31, 2022.