This article first appeared in The Edge Malaysia Weekly on May 9, 2022 - May 15, 2022

THIS Wednesday, May 11, will be the fifth anniversary of the completion of the Federal Land Development Authority’s (FELDA) acquisition of a 37% stake in PT Eagle High Plantations Tbk from Indonesia-based Rajawali Corp.

This anniversary is significant as it allows FELDA to exercise a put option against Rajawali Corp, which will reverse its acquisition of the 37% stake that cost a whopping US$505.4 million or RM2.26 billion back then, with 6% per annum interest charges to boot.

FELDA is likely to seek a reversal of the corporate exercise as it has been disputing the acquisition. Towards this end, it had filed a notice at the Singapore International Arbitration Centre in April 2019 seeking a return of the principal amount coupled with the stipulated interest charges of 6% per annum.

The Edge’s questions to Rajawali Corp remained unanswered at press time, while a FELDA executive said the development authority would issue an official statement to explain the arrangement of the put option but would do so at a “more appropriate time”.

Messages to FELDA chairman Datuk Seri Idris Jusoh, who is member of parliament for Besut in Terengganu, also went unanswered, possibly because of the Hari Raya festivities.

 In the run-up to May 11, there have been murmurings of an ami cable solution being reached. How ever, due to the quantum of FELDA’s losses, a cordial solution could not be achieved.

Earlier this year as well, there were rumours of a settlement being reached between FELDA and Rajawali Corp but an executive familiar with the matter denied that such a settlement took place.

FELDA’s acquisition came under fire at the time as it was done at a 95.86% premium to the market value of Eagle High’s shares.

To recap, FIC Properties Sdn Bhd, a wholly-owned unit of FELDA, acquired the non-controlling 37% block in Eagle High at IDR775 per share in late 2016. Last Friday, Eagle High shares were trading at a mere IDR78 apiece — just a tad above 10% of what FELDA had forked out for the stock.

Put another way, Eagle High’s market capitalisation at IDR78 per share came to US$169.8 million, which means FELDA’s 37% stake has a market value of only US$62.83 million, or an 87.57% decline. Hence, it is sitting on a paper loss of US$442.57 million, or RM1.94 billion at today’s rates.

It is a wonder that Eagle High’s share price had shed about 37% since May 10 last year, hitting a 52-week low of IDR64 on Jan 19 this year, and not rebounded in line with crude palm oil (CPO) prices.

Over the past year, CPO prices have gained more than 80%. CPO futures contracts were trading at RM6,388 per tonne last Friday.

Eagle High, meanwhile, has suffered losses in the past seven financial years and the first quarter of FY2022 despite stronger CPO prices. For 1QFY2022 ended March, the company suffered a net loss of US$15.1 million from US$51.9 million in revenue.

It has also been a political hot potato that Rajawali Corp is controlled by businessman Tan Sri Peter Sondakh, a close associate of former premier Datuk Seri Najib Razak, and the acquisition of Eagle High by FELDA was concluded during the Najib administration.

From what The Edge has gathered, a requirement for FELDA’s acquisition was for Eagle High to achieve Roundtable on Sustainable Palm Oil (RSPO) certification by 2019, but the dates to obtain the certification can be interpreted as being flexible, which is the real issue.

According to Eagle High’s FY2021 annual report, it has obtained one RSPO certification and six ISPO certifications and ranked No 32 on the Sustainability Policy Transparency Toolkit (SPOTT) with a score of 62.5%.

SPOTT is an online platform developed by the Zoological Society of London that annually assesses commodity producers, processors and traders on their public disclosure regarding their organisations, policies and practices related to environmental, social and governance (ESG) issues.

In September last year, it was reported that Eagle High had obtained RSPO certification for PT Bumi Langgeng Perdanatrada and PT EHP Mill, but other details on any RSPO certifications were not available.

According to Eagle High’s annual report for FY2021, its operational activities are in Sumatra, Kalimantan and Papua New Guinea. The combined acreage of the plantations on the three islands is 116,000ha.

For comparison, TH Plantations Bhd, which is 73.84% controlled by pilgrimage fund Lembaga Tabung Haji, has 98,240ha and is not known to be an efficient planter. Yet, it still managed to chalk up a net profit of RM70.17 million from RM760.8 million in revenue for its financial year ended December 2021.

Considering the situation Eagle High is in, it is clear that FELDA will likely seek to reverse the acquisition.

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