KUALA LUMPUR (Oct 29): FGV Holdings Bhd said it will start the process of terminating the land lease agreement (LLA) with the Federal Land Development Authority (Felda) once it receives an official notice from Felda on the matter, adding that the compensation due to the company could be between RM3.5 billion and RM4.3 billion.
In a statement today, FGV reiterated that it has yet to receive a written notice from Felda regarding the termination of the LLA.
“Once FGV receives an official notice from Felda as required under the LLA, FGV will follow the procedures outlined in the LLA to start the process of termination and determining the compensation due to FGV which will take 18 months to complete,” the company said.
The LLA refers to Felda-owned estates totalling 350,733 hectares that were leased to FGV for 99 years beginning from Nov 1, 2011.
“The expected compensation amount due to FGV as a result of the LLA termination may range between RM3.5 billion to RM4.3 billion based on internal assessment which will vary depending on FGV’s financial performance for 2020 and 2021 and other various factors,” said FGV.
Yesterday, Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed said the Cabinet has agreed to the special task force’s recommendation for the termination of the LLA.
Mustapa said the task force led by Tan Sri Abdul Wahid Omar had identified several main issues that need to be addressed expediently in Felda, including its unsustainable capital structure and its whopping RM10.6 billion debts.
He said the Cabinet has agreed to the task force's recommendations, comprising the restructuring of Felda’s debts, increasing the core income from Felda plantation lands by terminating the LLA and increasing the independence of settlers, according to the statement.
However, he did not mention the compensation that Felda needs to pay FGV, in which it holds a 33.66% stake, as a result of the termination.
In its statement today, FGV said its plantation supply chain remains intact as the LLA estates only represent 30% of the oil palm fresh fruit bunches (FFB) that is processed at FGV’s 68 palm oil mills.
“Due to the proximity of the palm oil mill locations to the LLA estates, we do not foresee any changes to the current FFB supply arrangement. The rest of the FGV’s plantation integrated value chain in the midstream and downstream businesses will remain uninterrupted by the LLA termination exercise,” said FGV.
“As LLA termination had always been a much talked about scenario, FGV has already prepared its businesses and operations for this eventuality,” it added.
As such, FGV said its overall long-term strategy to further grow and strengthen its high value-add business activities focusing on food and branded consumer products remains intact, and potentially expedited to provide higher expected returns to shareholders as the result of the LLA termination.
“FGV, will at all times safeguard the interests of FGV’s shareholders and we will make the relevant announcements at the appropriate time in the event of material development on this matter,” the company said.