DURING Tun Dr Mahathir Mohamad’s first round of premiership in the 1980s, Malaysia was well known for its slogan, Prosper thy Neighbour, an initiative to encourage developing countries to help another developing country get out of the poverty cycle.
Malaysia’s South-South Cooperation was translated into the Malaysian Technical Cooperation Programme (MTCP), where thousands of participants from Asia, East and Central Europe, South America and Africa benefited from training and consultative programmes conducted by various government agencies in this country. They came to learn about our success stories, of which the most outstanding was the national resettlement scheme of the Federal Land Development Authority (Felda).
Felda was set up in 1958 with the objective of eradicating poverty and improving the socio-economic wellbeing of the rural poor through a national land resettlement scheme. Beginning with 616 pioneer settlers in Pahang, today there are 112,634 settlers in 317 land schemes that cover 870,000 hectares nationwide.
Since its inception, settlers who volunteered into the scheme have been indebted to Felda because of costs associated with housing, infrastructure, field preparation and replanting. They will become the rightful owner of their land once all debts advanced by Felda are paid in full. Over the years the loan repayment schedules were constantly revised when commodity prices were low. In the 1980s, Felda wrote off the settlers’ bad debts enabling them to claim title to their land.
One of the reasons for the government’s generosity towards Felda settlers was that they represented a vote bank for the then Barisan Nasional administration, representing 54 out of the 222 parliamentary constituencies. The institutional largesse continues even under the new Pakatan Harapan government where second-generation settlers are also provided with subsidised housing and they can still draw revenue from an inherited plot of cultivation land.
Because of the volatility of commodity prices, Felda began in the 1980s to diversify from plantations to business. Its diversification led to the creation of three big companies — Felda Technoplant, Felda Global Ventures (FGV), and Felda Investment Corporation (FIC).
Felda Technoplant was to undertake plantation activities and replanting exercises. FGV was set up as a commercial arm for Felda’s overseas investments in palm oil; and FIC was to act as an investment arm of Felda, undertaking business activities that are non-plantation related, such as property development, hospitality and strategic investments.
As evident from the government’s White Paper — Towards Felda’s Sustainability — Felda has become an almost bankrupt agency. The reasons are many including the problem of ageing trees, low crude palm oil prices, costly replanting exercises, and a turbulent international business environment. But nothing can be as stark as bad governance, questionable deals, and gross mismanagement on the part of those who headed Felda, FGV and FIC.
The turning point actually began when FGV became a public-listed company in June 2012. One week after its initial public offering (IPO), FGV hit a peak of RM4.84 per unit, translating into a market capitalisation of RM19.85 billion. When it was listed Felda settlers were provided a loan of RM15,000 each to buy the shares. Today, the market capitalisation has shrunk to RM2.6 billion, which means the shareholders have lost more than RM17 billion in value. The average value of a FGV share is now RM1.30.
Since the IPO, Felda, FGV and FIC went on a shopping spree and a massive acquisition trail. The role of the three entities became blurred; when one refused to undertake a certain deal, the other would quickly pick it up.
The White Paper described the purchase of a 37 per cent non-controlling stake in Eagle High Plantations owned by the Rajawali group based in Indonesia at US$505.4 million. Earlier, JP Morgan had warned against the acquisition, as it was overpriced. A due diligence report questioned Eagle High’s net assets, its potential dividend leakages and cash flow and the overstatement of its land size. It turned out that Eagle High reported losses for its third consecutive year. By December 2018, its market capitalisation faced a 75 per cent drop from the US$505.4 million Felda’s FIC Properties paid.
Another bad deal was the purchase of Dataran Asas, a plantation firm based in Limbang, Sarawak. The purchase price was RM148.2 million for 10,907 hectares of land intended for oil palm cultivation. It turned out that 54 per cent of the land was encumbered with Native Customary Rights claims and the porous soil was later discovered to be unsuitable for planting. By a lopsided deal, Felda allowed Dataran Asas to appoint a third party to undertake logging on the said land between 2011 and 2013 without Felda getting any compensation.
Acquiring hotels became Felda’s newer interest since the 2012 FGV IPO. The Grand Borneo Hotel located in Kota Kinabalu Sabah was purchased at RM86.4 million even though the current market price was RM78 million. Ninety-eight per cent of the payment was made within two days. It was soon revealed that the Grand Borneo Hotel had a cash flow problem since 2010 and an accumulated loss of RM18.3 million in 2013.
In another hotel acquisition, the Merdeka Palace and Suites in Kuching, Sarawak was bought in 2014 at RM160 million when the market price was RM50 million less. Similar findings were made on the purchase of the Grand Plaza Hotel and Suites at Bayswater, London and the Park City Grand Plaza at Kensington, and two more properties in Wembley, outside London. Same story — overpriced, quick deal, no due diligence, engaging third party to handle the transaction, and ignoring procedures required by Felda and its subsidiary companies.
These are but some examples of questionable deals. There are others like the sturgeon fish-breeding project where the sturgeons have been paid for but the project failed to get an environmental impact assessment. The Kuala Lumpur Vertical project at Jalan Semarak has stalled and is the subject of legal proceedings. Other failed projects include Felda’s restaurant chain, broadband services and a digital identification project.
In presenting the White Paper, the federal government agreed to provide grants, loans and a government guarantee to enable Felda to restructure its loans and financial institutions. Unpaid excessive loans will be written off to lighten the burden of the settlers. New housing units will be constructed for the second-generation settlers. A sum of RM6.23 billion will be allocated over the next four years to restructure Felda.
Recalling that the initial objective of creating Felda in 1958 was to improve the socio-wellbeing and eradicate poverty of the Felda settlers, one wonders how many generations does it take to get a community out of poverty.
The writer is Malaysia’s former ambassador to the Fiji Islands and the Netherlands.