KUALA LUMPUR: FGV Holdings Bhd (FGV) says the Federal Land Development Authority or Felda has yet to approach it on the possible termination of their land lease agreement (LLA).
FGV, the country's largest crude palm oil (CPO) producer, said termination of the LLA was allowed under the agreement.
FGV would follow the procedures if Felda issued notice on the matter, the company said in a statement today.
Berita Harian reported over the weekend that Felda would want to reclaim some 350,000 hectares of land that it had leased to FGV.
Felda chairman Datuk Seri Idris Jusoh reportedly said the board of directors had agreed on the decision and was awaiting the government's directive before negotiating with FGV.
In 2012, Felda leased the 350,000 hectares to FGV through an LLA for 99 years starting from 2012, where the latter had committed to paying RM248 million a year to the former.
AmInvestment Bank Bhd has estimated that Felda would have to pay about RM4.3 billion to FGV for the early termination of the LLA.
Meanwhile, FGV said the assets involved in the LLA were estates and did not include its oil palm mills.
"If Felda wishes to purchase FGV's oil palm mills it should be based on 'willing buyer, willing seller' and current market value. It also needs the approval of other shareholders through an extraordinary general meeting (EGM)," FGV added.
FGV also responded to Idris' claims that Felda had a profit of more than RM1 billion before the IPO in 2012, but with the existence of FGV as a listed company, Felda had suffered losses every year with rising debt.
FGV explained that the projected income of Felda (through the LLA) was based on crude palm oil (CPO) price of RM2,800 per tonne when the LLA was signed in 2011.
The price of CPO is around RM3,000 per tonne now.
"CPO pricing plays the most important role in determining the company's profit or loss. After the initial public offering (IPO) in 2012, the payment to Felda from FGV did not meet the former's projections due to the decline in CPO price."
FGV added that the yield on fresh fruit bunch (FFB) was lower than expected as 50 per cent of the trees inherited by FGV in 2012 were considered old trees (more than 21 years).
"In addition, 15,000 hectares of land per year was allocated for replanting, contributing to the reduction of FGV's income," it said.
FGV said replanting expenses for the 15,000 hectares were in the range of RM300 million per annum, while the cost of fertilisation and rehabilitation stood at around RM300 million annually.
"We choose to replant and upgrade the estates in order to achieve long-term sustainability. As a result, we have been able to reduce the percentage of old trees by about 30 per cent."
FGV said the LLA land was better and much improved compared to those given to it during the IPO, adding that the IPO had often said to be the cause of Felda's failure and downfall.
"The real issue is the use of revenue from the IPO, and not the IPO itself. Felda has earned RM5.7 billion from this IPO while FGV has earned RM4.5 billion," said FGV.
Unfortunately for FGV, it said part of the proceeds was not well invested and up until the end of 2018, the company had made substantial impairments amounted to RM780 million for those new investments.
"Felda's statement that it should receive RM800 million a year from the LLA is not correct. In the agreement, it is stated that the amount payable to Felda is RM248 million a year plus 15 per cent of the operating profit from LLA land."
To date, FGV said its responsibility towards Felda based on the LLA, amounting to RM248 million a year, had been fully met.
"FGV has paid more than RM2.5 billion to Felda from 2012 to 2019," it added.
Previously, the New Straits Times reported that FGV could have saved about RM1.5 billion in annual operations expenditure, should the land was returned to Felda.
FGV group chief executive officer Datuk Haris Fadzilah Hassan said the company's cash flow and borrowings can be improved without the annual commitments with Felda as the landowner would need to take back existing plantations-related workers involving 11,000 workforce.
FGV's annual commitments to its plantations include RM300 million for replanting activities, up to RM350 million (fertilisation), RM270 million in capital expenditure and RM590 million in employees salaries annually.
FGV currently owns about 68 mills of oil palm at Felda plantation throughout the country.