A string of bad investments

This article first appeared in The Edge Malaysia Weekly, on December 24, 2018 - December 30, 2018.
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APART from the net losses disclosed in the 2017 Auditor-General Report, it is difficult to gauge the financial position of the Federal Land Development Authority (FELDA) and the extent of mismanagement at the agency as its annual reports are not made public.

However, it is known that FELDA made a string of bad investments over the years, which has resulted in huge paper losses.

One of which was the controversial acquisition of a 37% stake in PT Eagle High Plantations Tbk for US$505.4 million — at a 95% premium to the market price.

Eagle High has suffered losses in the past three financial years and seems likely to maintain its losing streak this year. In its nine months ended Sept 30, it suffered a net loss of US$17.4 million on revenue of US$228.1 million.

Other questionable acquisitions by the group include its entry into identification solution provider IRIS Corp Bhd and property developer Encorp Bhd via its wholly-owned subsidiary, Felda Investment Corp Sdn Bhd (FIC), which was set up in 2013.

In 2013, FIC bought 526.27 million shares or a 26.71% stake in IRIS for RM144.69 million or an average 27.49 sen per share via two private placements. Since July 2015, IRIS has never traded above 28 sen.

FELDA also acquired a 49.5% stake in Encorp at RM239.72 million or RM1.55 per share in 2014. Last Friday, Encorp’s shares closed at 43 sen. In view of the mismanagement at FELDA, the Ministry of Economic Affairs said it would come up with a White Paper, which would include proposals to restore proper financial management and governance to the agency.

The paper was supposed to be tabled in parliament on Dec 10 but was postponed to next year on the advice of the Attorney-General’s Chambers, as several legal matters need to be resolved before the paper can be presented, according to Economic Affairs Minister Datuk Seri Mohamed Azmin Ali.

In the meantime, FELDA announced that it has drawn up a transformation plan involving 31 strategic initiatives to turn its operations around. The plan will be implemented in three phases, with each taking eight months.

While it did not elaborate on the details of the plan, it said it includes establishing a better and more transparent loan management system and the addressing of land inheritance issues faced by the settlers.

The initiatives have been approved by the board of FELDA, although it said the plan will only be finalised after discussions with the government.
 

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