Trade Wise: Fima Corp fighting hard to keep Indonesian plantation business

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This article first appeared in The Edge Malaysia Weekly, on October 31 - November 6, 2016.


A decade after its entry into Indonesia, diversified group Fima Corp Bhd is now fighting tooth and nail to keep its plantation business in the republic. This follows Indonesia’s Ministry of Agricultural and Spatial Planning’s revocation of its subsidiary’s land cultivation rights there, affecting 57% of its planted area.

Much is at stake for Fima as its local subsidiary, PT Nunukan Jaya Lestari (PTNJL), accounted for between 26% and 34% of the group’s revenue over the past eight financial years, based on Bloomberg data. According to its 2016 annual report, out of Fima’s 6,922.08ha of planted land, 92.9% are located in Indonesia.

On Aug 26, Fima announced to Bursa Malaysia that the Indonesian government had revoked its 80%-owned Indonesian subsidiary’s cultivation rights.

The ministerial order was made on the basis that the cultivation rights had been improperly issued, resulting in the overlapping of some of Fima’s planted areas with forestry areas. Fima said the issue arose from “administrative irregularities” allegedly committed by certain officers of Badan Pertanahan Nasional Provinsi Kalimantan Timur during the issuance of the cultivation rights in 2003.

On Oct 21, Fima told Bursa that it had started legal proceedings to challenge the ministerial order at the Indonesian equivalent of Malaysia’s high court. It stated that PTNJL has good title to the cultivation rights as it has complied with all procedural requirements and fulfilled all obligations.

The group is also arguing that the order runs against the principles of good governance and violates various laws in Indonesia, adding that the reasons underlying the revocation are invalid.

“[The reasons] are not within the contemplation of nor fall within the reasons set out in various substantive laws that would allow a HGU (Hak Guna Usaha) to be revoked and therefore could not form the legal basis for the ministerial order,” said Fima in the filing with Bursa.

Fima is also seeking a stay order to put off the enforcement of the ministerial order. In the interim, Fima said, the local authorities have given an undertaking that its plantation operations may lawfully continue until the legal dispute is resolved.

At press time, the company had not replied to The Edge’s queries.

The cultivation rights are under a leasehold term that expires in 2038 and covers 49,356.75 acres of agricultural land in Nunukan Regency, East Kalimantan.

Fima, via its wholly-owned unit FCB Management Sdn Bhd, had paid RM13 million to acquire a 32.5% stake in PTNJL in June 2006. By April 2007, it had paid RM83 million to increase its stake to 80%.

The remaining equity interest is owned by Datuk Andi Yakin Mapasere, also known as Muhammad Sampa, according to a previous Bursa filing. Another shareholder, Muhammad Ramli, had transferred his 5% stake to Andi Yakin.

The area in dispute has a colourful history. According to a 2013 court judgment sighted by The Edge, PTNJL first applied to cultivate the land in early 2002. Cultivation rights to a portion of the area in question had originally been awarded to a company called PT Adindo Hutani Lestari (PTAHL) in the late 1990s, but the award was briefly revoked in October 2002. It was restored in February 2003.

However, local officials later decided that the area that PTNJL was applying for was not problematic. Thus, it was awarded the cultivation rights in April 2003, according to the judgment.

Consequently, there was an overlap of PTAHL and PTNJL’s cultivation rights. PTAHL, whose rights cover an area of about 200ha, later lodged a complaint over the matter, said the judgment.

In September 2013, former PTNJL shareholder Muhammad Ramli was convicted for illegally cultivating plantation crops on forestry land via the company at an unspecified period between 2003 and 2011. He was sentenced to eight months’ imprisonment. Two former local public officials were also sentenced to jail.

Meanwhile, the tussle between PTNJL and PTAHL continues.

In May, PTNJL took its case to the local House of Representatives in Nunukan, requesting a halt to the revision of its cultivation rights. According to news reports, PTNJL claimed that the local court had previously upheld the legitimacy of its rights award.

The reports said PTNJL also based its request on its importance to the local community, citing its employment of over a thousand workers, its payment of taxes and the schools it has built for the local community. Following the issuance of the ministerial order, over 800 workers turned up at the local legislator’s office in protest, according to local media.

It is currently unclear what will happen to Fima’s investment in PTNJL should the current legal challenge fail. “Based on current circumstances, the board is of the opinion that this suit will not have any immediate material operational and financial impact on the group,” said Fima in the Oct 21 filing with Bursa.

However, losing its plantation arm in Indonesia is likely to hurt the group’s earnings and dent its balance sheet.

For the financial year ended March 31, 2016 (FY2016), the group saw its net profit fall 8% to RM51.28 million from RM55.76 million in the previous year, while revenue decreased by a marginal 0.7% to RM375.21 million from RM378.01 million in FY2015.

As for its top line, 27.3% or RM102.6 million came from the Indonesian plantation business. According to Bloomberg data, some 30.6% of Fima’s total assets, totalling RM196.9 million in value, were in Indonesia as at March 31, 2016.

Fima traces its history back to the mid-1970s. According to its website, the group was listed in 1976 as Metal Box Bhd and by 1990, had acquired the Malaysian government’s security printing arm.

Its majority shareholder with a 60% stake is conglomerate Kumpulan Fima Bhd, which has businesses ranging from manufacturing to food packaging. Kumpulan Fima’s majority shareholder is BHR Enterprise Sdn Bhd, the private vehicle of the family of the late Tan Sri Basir Ismail.

Basir, who was executive chairman of Kumpulan Fima, chairman of Malaysian Palm Oil Board (MPOB) and chairman of Malaysia Airports Holdings Bhd (MAHB), passed away in January 2007 from a heart attack. Three of his four children are non-executive board members at Kumpulan Fima and Fima.

Fima shares closed one sen higher at RM2.17 last Thursday, giving it a market capitalisation of RM523.16 million. Kumpulan Fima shares ended the day unchanged at RM1.77, giving it a market cap of RM498.36 million.