THE planned restructuring of Felda Global Ventures Holdings Bhd ’s (FGV) 99-year land lease agreement (LLA) with its parent company is work in progress with nothing concrete formulated yet, says FGV group president and CEO Datuk Zakaria Arshad.
“We are still exploring and negotiating for the best mechanism with Felda,” he says.
One move that Zakaria has embarked on though is to do with seeking to reduce the acreage of land that comes under the LLA.
“There are parcels of land that are considered marginal non-productive parts of our plantations that are not heavily planted. We are looking to carve out these strips of land from the LLA, thus lessening our financial contributions to Felda,” explains Zakaria, adding that these could come up to thousands of hectares.
To recap, the LLA between FGV and its parent company Federal Land Development Authority (Felda) entails FGV having to pay Felda a fixed lease amount of RM250mil per year in cash for 20 years and a 15% share of operating profit from the sale of fresh fruit bunches (FFB) derived from the estate land leased from Felda.
Zakaria explains that on the positive side, the presence of the LLA means that FGV did not have to pay money to acquire the land or having to lease it from a third party. But still, it does present a problem as investors find it difficult to assess the value of FGV with the presence of the LLA.
“We are a unique plantation company because of the presence of the LLA. When analysts want to assess us, it makes it difficult for them. What we do now is to explain clearly how the LLA is calculated. But we are compared with planters without LLAs.
“What we can do for now is to reduce the LLA land and to increase the direct ownership of land. The reduction of the LLA land is by carving out marginal non-productive land and returning that back to Felda while increasing direct ownership is by acquiring new plantations,” says Zakaria.
The LLA component also complicates the fair value accounting treatment on FGV, which saw its profits being pulled down in the recent financial year results. “There is a need to make it easier for the LLA fair value change calculation to be done and better reflect in the operational profits based on the measures taken by the FGV group since listed in 2012,” explains an industry observer.
That said, sources reckon that the renegotiation and restructuring of the LLA will be carried out gradually within the next four to five years.