This article first appeared in The Edge Financial Daily on October 9, 2019

KUALA LUMPUR: The Merdeka Palace Hotel and Suites in Kuching that was bought for RM160 million by Felda Investment Corp Sdn Bhd (FIC) between late 2014 and early 2015 was subsequently valued at only RM80 million, the High Court heard yesterday.

FIC acting chief financial officer Azlan Mohamed Ismail said the company’s board of directors sought a reassessment of the hotel purchase in 2017 following allegations it was bought at an inflated price.

“Professional valuers were appointed from CH Williams Talhar Wong & Yeo Sdn Bhd and based on their revaluation, the hotel was estimated to be priced at RM80 million,” he said.

“The valuation was based on a tender exercise for the sale of the hotel where two offers were made, one at RM69 million and another at RM85 million. The offer of RM85 million was withdrawn after due diligence was done and the RM69 million offer was raised to RM77.5 million,” he said in reply to questions from deputy public prosecutor Afzainizan Abdul Aziz.

Azlan, 51, was testifying at the trial of former Federal Land Development Authority (Felda) chairman Tan Sri Mohd Isa Abdul Samad. FIC is a unit of Felda.

Mohd Isa is accused of approving the purchase of the hotel for RM160 million without Felda directors’ nod on April 29, 2014. The charge under Section 409 of the Penal Code carries a maximum jail term of 20 years, whipping and a fine.

Mohd Isa also faces corruption charges of dishonestly receiving RM3.09 million for gratification from Ikhwan Zaidel, a board member of Gegasan Abadi Properties Sdn Bhd (GAPSB), through one Muhammad Zahid Md Arip, for helping approve the hotel’s purchase.

Azlan testified that the revaluation was directed by then Felda chairman Tan Sri Shahrir Abdul Samad.

He added that based on the value of the proposed bid of RM77.5 million in 2016, there were “unrealised losses” for FIC of RM82.5 million in 2016 and RM72.5 million in 2018.

Azlan said the hotel is still owned by FIC until now despite the purported “unrealised losses”.

‘Priced at RM153 million before purchase’

Cross-examined by Mohd Isa’s counsel Datuk Salehuddin Saidin, Azlan however agreed that a valuation done in 2014 and tabled before the FIC board showed that the property was priced at RM153 million.

The witness also agreed with the lawyer that the CH Williams valuation did not take into consideration a couple of factors mentioned in the 2014 valuation, namely that the surrounding hotel area would be developed by the Sarawak government into a green hub and that there was a shopping mall under construction then.

Azlan agreed that the valuation report before the hotel purchase could have been done by his boss and then FIC chief executive officer Mohd Zaid Abdul Jalil.

He agreed when Salehuddin said the report was professionally done, and not made by Mohd Isa or the FIC board.

He further agreed that the valuations done in 2014 and 2016 by professional valuers were based on different considerations.

Azlan also agreed with the lawyer’s suggestion that while working for FIC, no one had complained that the purchase of the hotel was not based on the market price.

The witness said he did not know who lodged a report with the Malaysian Anti-Corruption Commission with regard to the purchase.

Azlan said following the decision to purchase the hotel, the payment of a 10% deposit or RM16 million was made on July 1, 2014, while another RM43.126 million was paid to Jang Assets Networking Group Ltd on Sept 25.

“Subsequent payment of RM97.993 million was made to GAPSB on May 29, 2015. Another RM567,110.29 was paid to FIC Kuching Properties Sdn Bhd on Oct 29, 2015, and another RM2.312 million to GAPSB on Oct 23, 2015,” the witness said.

‘FIC got RM100 million advance from Felda for hotel purchase’

Earlier, former Felda finance director Mohd Shahrin Mohd Ali, 50, testified that FIC sought to borrow RM100 million from Felda in late 2014 to finance the purchase of the Kuching hotel.

He said that as it was a huge amount, the request had to be approved by the Felda board.

“I recall that FIC asked for the loan as it was facing cash flow problems. This was despite Felda pumping more than RM500 million into it prior to this when it was formed,” said Mohd Shahrin.

Replying to Afzainizan, he said FIC was trying to get the funds from an international Islamic bank, but in the end Felda’s financial department prepared the working paper for the financing.

“The [RM100 million] money was obtained from the Employees Provident Fund. This RM100 million was an advance from Felda to FIC,” he said, adding that the funds were dispersed after the board subsequently gave its approval.

Mohd Shahrin, who served as a finance director from 2012 to March 2019, said he did not know whether the Felda board approved the purchase of the hotel as he did not attend the board meeting.

“But from what I know, the Felda board approved the RM100 million advance and the payment was made,” he said.

Prior to this, Mohd Shahrin said, Felda had injected RM500 million into FIC, which was partially used for the hotel purchase.

A total of RM499.5 million was given by Felda to FIC on May 27, 2014, and another RM51.208 million on Sept 23, 2014.

FIC was formed in July 2013 by Felda to focus on investment activities.

Cross-examined by Salehuddin, Mohd Shahrin maintained that he did not know whether the Felda board approved the hotel’s purchase in the board meeting on December 2014 as he was not a board member.

What he knew, Mohd Shahrin said, was that he was required to prepare the working paper for FIC which sought the advance.

However, he conceded that the advance payment made could be an indication that the Felda board had given its nod for the hotel purchase.

Mohd Shahrin agreed with Salehuddin that there were supposed to be standard operating procedures in place to ensure that approval was gained by the Felda board before FIC was allowed to purchase a property, but he was unsure whether they were followed or not.

“Normally, as an accountant, we would not give the advance sought if there was no approval from the board,” he said.

When shown the June 23, 2015 Felda board minutes by Salehuddin, he agreed that the advance of RM100 million to FIC was approved by then.

Mohd Shahrin also said the board composition of Felda and FIC was the same and the only difference was the additional one member at FIC.

Hearing continues today before Justice Mohd Nazlan Mohd Ghazali.