In election year, will FGV be sold to foreign interests?

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The appointment of three fresh directors at Felda Global Ventures Holdings Bhd (FGV), all from Federal Land Development Authority (Felda), has been depicted in mainstream Malaysian media as a positive move from a corporate governance point of view.

 

Supporters of this development say it will give Felda more influence over FGV since it had fewer directors before this change to FGV’s board and thus more say, as a large portion of its land has been leased to FGV for recurring income. However, it is anything but positive when seen from a national-interest perspective as there could be larger forces at play.

 

A key milestone occurred last December, when Felda’s subsidiary FIC Properties Sdn Bhd (FICP) bought a 37% stake in Indonesia’s PT Eagle High Plantations Tbk for US$505.4 million. It was an acquisition that was completed very quietly, despite shareholders of both FGV and Sime Darby Bhd earlier rejecting the same stake offered due to multiple corporate governance concerns. These included liquidity and cash flow challenges, the possibility of due diligence adjustments on the assets side of its balance sheet, shrinking profit margins, overstated planted acreage, improperly classified land that could hamper future cultivation and an inefficient corporate structure.

 

But Felda’s purchase passed quietly and without fanfare, despite the fact that the purchase price amounted to a 173 percent premium for a non-controlling 37% stake. The inflated price that Felda paid for Eagle High was not lost on CIMB Chairman Datuk Seri Nazir Razak, who posted a picture on his personal Instagram account of his father, the late Prime Minister Tun Abdul Razak Hussein, along with a message that indicated his concerns over the inflated valuation.

 

Nazir wrote, “I hope the board (of Felda) will fully justify the acquisition and valuation even though the deal is no longer made by listed FGV.”

 

Despite this, Felda has by and large escaped public scrutiny, since it is able to do so as a private entity whose reporting structure goes directly and only to the Prime Minister’s Office. The minister in charge of Felda is none other than Prime Minister Dato’ Sri Mohd Najib Tun Abdul Razak: a provision that took effect starting from April 2004.
But what could greater Felda involvement in FGV mean?

 

One speculated outcome is the objective of Tan Sri Peter Sondakh — said to be a close confidante and business partner of the Malaysian Prime Minister — to further reduce his share in Eagle High, to free up some funds to pay off losses in other business dealings with his Malaysian partners, said to be to the tune of billions of dollars. The vehicle to which more shares in Eagle High is to be disposed is FGV.
With Felda now having increased board representation and therefore influence, another attempt at FGV buying an additional 33% in Eagle High is in the offing. FGV still has RM1.87 billion in cash at March 31 2017, more than enough to buy a 33% share in Eagle High. And with Felda controlling FGV with a combined 33.67% ownership (via 21.25% held under Lembaga Kemajuan Tanah Persekutuan (Felda) and 12.42% by Felda Asset Holdings Company Sdn Bhd), it is able to do so. But that’s merely the first step of a two-step strategy by the same powers that be.

 

The second step involves an asset injection and ultimately control of FGV by Sondakh and another Indonesian, Martua Sitorus, who is a co-founder of Wilmar International, among Asia’s leading agribusiness groups and listed on the Singapore Exchange, where it ranks amongst the largest listed companies by market capitalisation. Beyond the question of whether FGV can be prevented from buying the troubled Eagle High, Malaysian need to ask: how can FGV, which is the world’s largest Crude Palm Oil (CPO) producer and the secondlargest Malaysian palm oil refiner with over 19,000 employees, be prevented from being owned by hostile Indonesian interests?

 

WHY MARTUA SITORUS SHOULD NOT OWN FGV

While Sitorus is a co-founder of the respected Wilmar with his partner, Kuok Khoon Hong, some reports say that his interests in non-publicly listed plantation assets are both enormous, and deliberately incur minimal visible exposure within the public and international investment community.

 

One entity often referred to in connection with Sitorus is ‘Ganda Sawit Utama’ (GSU), which according to the NGO Aidenvironment, has controlling stakes or management control in over two dozen of plantation entities. These stakes are estimated at over 360,000 hectares of land throughout Indonesia. But more worrying are various accusations that have been levelled at Sitorus and his brother Ganda for violating Sustainability policies underwritten by Wilmar itself.

 

A 2015 report by Greenomics-Indonesia, an NGO, found illegal clearing of forested peatlands on a concession controlled by the Ganda Group, whose owner, Ganda Sitorus, is Sitorus’ younger brother. These and other reports indicate that Wilmar’s supply chain continues to be strongly associated with the illegal clearing of forested peatlands, with Wilmar itself being recorded as among the largest customers of suppliers that continue to engage in the clearance of forested peatlands.

 

Not only that. As the German newspaper Der Spiegel has pointed out, Ganda Sitorus, himself a former Wilmar employee, has used his own company as a clearinghouse of sorts for troublesome Wilmar subsidiaries that threaten Wilmar’s sustainability credentials. When the NGO Friends of the Earth documented how Wilmar subsidiaries had been involved in deforestation activities in Borneo, the controversial firms were sold to Ganda Sitorus.

 

As such, illegal land clearing and land grabs are among the many offenses against the environment that the Wilmar co-founder and his brother Ganda have committed.
With FGV a proudly Malaysian entity and thousands of Felda settlers dependent on the preservation of ethical and equitable practices for their survival, the Sitorus brothers are clearly not an optimal owner, if such an eventuality is allowed to occur.

 

More pertinently, it is a challenge to see how a Felda-FGV-Eagle High-Wilmar-Ganda connection such as it is, with a joint acreage well in excess of 1.2 million hectares but hampered by by the environmental record of its members, will have optimal access to the certified sustainable palm oil markets in Europe and North America, making for an uncertain and opaque future, from a commercial standpoint.

 
WHY PETER SONDAKH SHOULD NOT OWN FGV

Sondakh’s linkages to Malaysia appear to be far more substantial.
In 2005, Sondakh sold part of his telecommunications company PT Excelcomindo Pratama (XL) to Telekom Malaysia Bhd., transactions which were said to have enriched certain politically linked interests at the time. More recently, opposition politicians like Rafizi Ramli have pointed out on his website (http://rafiziramli.com) that Sondakh’s hand in the construction of the St. Regis Hotel and the Langkawi International Conference Center (LICC) on the resort island to the tune of RM400 million have come at the cost of Malaysian taxpayers.

 

Rafizi says some RM267 million to build the St Regis have come through loans from Bank Pembangunan Malaysia Bhd as well as via government grants — amounts equivalent to 92% of the project’s financing needs. In part, Rafizi now asks if this complex web of deals is connected to the use of Felda and FGV to purchase Sondakh’s interests in Eagle High.
Felda and its interests in FGV are troubled by recent developments. But their problems are not insurmountable. There are many credible and well-respected local businesspeople in Malaysia involved in agribusiness that would be only too happy assist in rejuvenating FGV if they were called on to perform a national service.

 

However, those calls have not been made — at least not to public knowledge.
The only two names that have been mentioned continue to be Sitorus and Sondakh, one whose name has been tainted by offenses to the environment and the other, for his links to the ruling establishment in Malaysia. Neither appear suitable for a full-scale rehabilitation of the world’s largest CPO producer and the No. 2 Malaysian palm oil refiner with over 19,000 employees.

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