More benefits for Felda settlers

Opposition to FGVH listing appears to be unfounded

POISON pen letters. A street demonstration in Kuala Lumpur. Allegations of sabotage attempts by “traitors” in Federal Land Development Authority (Felda). These were among the interesting recent news reports related to Felda Global Ventures Holdings Sdn Bhd (FGVH), which is en route to a listing on Bursa Malaysia Main Market in April 2012.

Felda is a statutory body founded in 1956 to alleviate poverty among rural Malays via a land resettlement scheme.

Two weeks ago, FGVH released a statement that refuted an English daily’s report on the investing community’s doubts and a possible delay concerning the listing exercise.

FGVH president and chief executive Datuk Sabri Ahmad said plans were on track for the initial public offering (IPO) in April 2012.

“While we are open to ideas that can improve the listing process or optimise valuations, the board of FGVH is resolute in its mission to get the company listed by April 2012. There is no wavering on our part and we are very clear as to how this listing will bring benefits and create a win-win situation for all,” said Sabri.

He added that the decision by Felda Investment Cooperative (KPF) to own substantial shares in FGVH prior to listing was designed to allow benefits to directly flow down to Felda settlers, all of whom are members of the cooperative.

Sabri said FGVH’S listing could not be stalled by outside parties who had no stake in the company or any form of involvement in its governance.

“Our decision to list is well thought out. It is the culmination of a process started in 2009 as part of Felda’s five-year transformation programme. FGVH’S role is to expand Felda’s international business footprint and pursue new ventures to ensure steady growth,” he said.

FGVH, the commercial unit of Felda Global Group, is a highly diversified entity focusing on palm oil, sugar, multicrop, logistics and supply chain as well as downstream operations.

With a plantation land-bank sprawling 880,000ha, the Felda Global Group produces about three million tonnes of crude palm oil (CPO) annually, accounting for some 8% of the world’s CPO output.

Felda Global Group comprises FGVH and Felda Holdings Bhd, which are the commercial entities of Felda.

KPF owns 51% in Felda Holdings while FGVH holds the remaining 49%.

Felda Holdings is considered a gem for its assets, which include the huge plantation land bank as well as profitable agriculture and plantation-related businesses consisting of palm oil mills, refineries, rubber factories, and manufacturing plants.

The listing would turn Felda settlers into owners of the listed FGVH via KPF.

The listing of FGVH is expected to raise some Rm6bil, in what could be Malaysia’s biggest IPO this year.

Although details about the structure of the proposed listing had not been officially announced yet, news reports had said the IPO was likely to involve settlers swapping their 51% stake in Felda Holdings via KPF for 61% control of FGVH.

A listed FGVH is being touted as potentially creating the world’s largest listed plantation group.

Starbiz had reported last november that FGVH would focus on downstream activities and was looking to forge joint ventures with leading multinationals in the downstream business.

Sources had said FGVH’S listing was spurred by Felda group’s plans to expand on its downstream activities as a long-term strategy.

“Downstream is where we find more value add. It is also a business that is less prone to commodity price volatility,” said an industry player.

Felda already has significant downstream business. Its cooking oil, Saji, is a market leader in Malaysia, while some 30 other brands of speciality fat products are being produced and distributed worldwide.

So, what are the issues surrounding the controversy over the proposed listing of FGVH?

One concern surrounds the plan for the leasing of 360,000 ha of Felda’s plantation land to FGVH. The concern seems to be that the revenue from the land may hence no longer go to settlers. However, a source familiar with the listing process pointed out that the lease arrangement would actually help Felda to unlock values from its plantations, which would then flow back to settlers via their ownership of the soon-to-be-listed FGVH.

At present, a Felda unit, Felda Plantations Sdn Bhd manages this plantation land. But not much has been done to reinvest into these plantations. The source explained that more than half of the palm trees in these plantations are more than 20 years old and that yields are naturally declining. Under the lease agreement, FGVH will now be given the right to develop the land.

“So you can expect to now see positive changes such as re-planting and additional businesses being developed on this land that will complement the existing operations. Hence, moving forward, the leasehold agreement will see high productivity and revenue coming from the same land which will be returned to the settlers,” he said.

Another worry has been that KPF may somehow be paying out less dividends post FGVH’S listing. However, in all likelihood, KPF may be paying higher dividends, due to the favourable structure that is being created by FGVH’S listing. FGVH, once in its restructured and listed form, will own 100% of Felda Holdings, where all the plantation revenue and profits come from. This is certainly better than the current structure where KPF only owns 51% of Felda Holdings. Also, projections are that FGVH will be an entity with an annual profit after tax of around Rm1.4bil. And KPF’S direct share of these profit are estimated at Rm504mil.

The source explained that the listing would not impede any of the settlers’ lands, which is another fear. “Felda settlers will continue to enjoy whatever income they get from their own small holdings,” he said.

He added that whatever spending that Felda currently undertook for social purposes related to the settlers would continue. “The Government will make sure that Felda continues to receive sufficient funding to allow this to continue.”

It should be noted that in June last year, Felda Global Group’s sugar refining arm, Msm malaysia holdings Bhd, had a successful listing on Bursa Malaysia with a market capitalisation of about Rm 2.4bil.

The MSM Malaysia listing is a watershed in Felda’s history as it was the first time the body listed one of its businesses.