KUALA LUMPUR – The Federal Land Development Authority (Felda) is expected to compensate FGV Holdings Bhd up to RM3 billion if it decides to terminate a land lease agreement (LLA) with the listed state-owned plantation group, people familiar with the matter tell The Vibes.
In an interview with national newswire Bernama last Saturday, Felda chairman Datuk Seri Idris Jusoh said as part of a turnaround plan, the agency plans to take back its leased plantations of 355,000ha from FGV.
Terminating the agreement requires Felda to compensate FGV based on the average profit per mature hectare for the entire leased land multiplied by the loss of the latter’s future profits.
“This might cost Felda up to RM3 billion based on specifics in the agreement,” a source said.
According to FGV’s annual reports, the group spends roughly RM1.5 billion in operating costs. These include: RM300 million a year in replanting activities, up to RM300 million in fertilising activities, RM270 million on workers’ hostels, and RM590 million in salaries for plantation staff.
Ever since FGV was floated on Bursa Malaysia in 2012 – the stock was the second-largest initial public offering (IPO) in the world, fetching RM10 billion after Facebook – the LLA was a pain point for the group and Felda, its controlling shareholder with a 33.7% stake.
In FGV’s listing prospectus, Felda surrendered the management of 355,000ha of plantations in return for a fixed payment of RM248 million a year regardless of crude palm oil (CPO) price, and a 15% share of profits from the leased acreage.
The LLA is for 99 years with FGV expected to contribute at least RM800 million a year on the assumption of CPO prices remaining at RM2,800 per metric tonne or greater from the point of listing. Any negotiations over payment would only commence 20 years into the agreement.
But CPO prices nosedived and has yet to recover to 2012 levels with latest estimates seeing the commodity being traded around the RM2,494 per metric tonne range.
When the government tabled the Felda white paper last year, the agency said it sustained losses up to RM4.9 billion in 2017. It pinned the blame on FGV for not contributing to earnings.
Because Felda’s cash balances as at May 9, 2018, was RM35 million, the government last year had to inject RM6.23 billion into the agency for various initiatives.
Insiders said that ever since FGV failed to live up to the mark, there had been regular negotiations between the group and Felda over terminating the LLA.
Idris’ move, said a source, “maybe a step in the right direction” as both have different mandates.
“FGV has to be profit driven so it is tough to expect them to understand the sociopolitical dynamics of Felda settlers. Also it presents an opportunity for both Felda and FGV to reset and start afresh.”
But the only concern, the source said, is “how Felda is going to get the money to pay FGV, should end the LLA deal”.
FGV CEO Datuk Haris Fadzilah Hassan told business publication The Edge on August 13 that a termination of the LLA could boost the group’s dry powder to RM5 billion which could then be used to purchase flat acreage that is well-connected and easily monetised. – The Vibes, October 19, 2020
