EGM of Felda's cooperative may see some sparks flying

FELDA's Dewan Merak Kayangan in Jalan Gurney is one of the most-sought-after venues in Kuala Lumpur for various congregations, especially Malay weddings among the rich and local artiste alike, with sumptuous spread served by De Saji, Felda's renowned catering group.

This Wednesday, an equally important congregation of national interest is about to take place there the highly-publicised EGM of Koperasi Permodalan Felda (KPF), a cooperative owned by Felda settlers.

The earlier Jan 5 KPF EGM, which was skewered towards the proposed listing of Felda investment arm Felda Global Ventures Holdings Bhd (FGVH) on the Main Market of Bursa Malaysia, had to be postponed.

Four settlers in Pahang on Jan 4 had managed to get an injunction from the court to stop the earlier EGM from taking place.

Felda settlers, via KPF, holds a 51% stake in Felda Holdings Bhd, which in turn is a 49% subsidiary of FGVH. The statutory body under the Prime Minister's Department, Federal Land Development Authority (Felda), meanwhile has a 100% stake in FGVH.

While many sceptics are expecting sparks to fly at the upcoming KPF EGM, Felda chairman Tan Sri Mohd Isa Abd Samad maintained that the FGVH initial public offering (IPO) had managed to garner wider support from the settlers after Felda's recent dialogue session on the beneficial traits to be derived from the listing exercise.

Post-listing, both Felda and the Government have given the assurance that KPF will become the single-largest shareholder of the listed entity.

However, the latest twist to the upcoming EGM on Feb 22 is that the Kuantan High Court last Saturday has granted an interim injunction to stop KPF from selling its existing stake in Felda Holdings to FGVH at the EGM.

Given this interesting development, will the upcoming EGM be postponed for the second time? Perhaps not.

Apparently, many still have yet to understand that the listing of FGVH is not contingent upon the approvals from settlers nor KPF because its ultimate parent Felda owns 100% stake in FGVH.

A market observer said the upcoming EGM, in a way, is to further explain to settlers on the benefits of KPF becoming a major stakeholder of FGVH post-listing.

“Should KPF and settlers continue to oppose the listing exercise, it is their choice,” he said, but cautioned that in the long term, KPF would miss out the big opportunity to participate in FGVH's exciting business growth and expansion.

On the other hand, it is worth mentioning that the political scope of Felda is huge, with 112,635 settlers and their families as stakeholders. In fact, the settlers are voters in 54 parliamentary constituencies. What more with the 13th general election (GE13) on everyone's lips.

Felda settlers' votes at the upcoming KPF EGM and the GE13 will be most coveted.

For the upcoming KPF EGM, a member of the National Smallholders Association suggested that settlers be given higher number of shares in KPF to enable them to reap the full benefits of the FGVH listing.

Currently, the average shares in KPF owned by a settler is about 6,000 units or equivalent to RM6,000, despite the maximum of about 250,000 units per settler.

Of the total 220,000 KPF stakeholders, 112,635 are Felda settlers, of which only 62 settlers are currently holding 250,000 units each.

Some industry observers even said that settlers should insist on Felda and FGVH to guarantee them with a 15% dividend or more every year post-listing.

However, a market analyst with a bank-backed brokerage disagree with the demand, as even now FGVH could only contribute part of KPF's profits (if based on KPF's current 51% stake in Felda Holdings) while the rest is generated from KPF's own investment.

In any case, since KPF was formed in 1981, Felda Holdings had underwent three recessions but still managed to provide profits for KPF to pay out average dividends of 14% per year for the past 30 years.

Meanwhile, sources close to Felda had said that the group was in the midst of formulating “a mechanism” for settlers to own shares directly in FGVH.

Some observers expect a special financing programme to be set up whereby selected banks can act as agents for settlers to increase their stake in FGVH, almost similar to purchasing Amanah Saham Bumiputra units under the Amanah Saham Nasional Bhd managed by Permodalan Nasional Bhd.

On the part of Felda Global Group, one industry observer said the journey towards the full listing of FGVH was akin to a great roller-coaster ride.

He said the listing had provided fodder to discredit FGVH and its 88 active subsidiaries, including Felda Holdings (collectively called Felda Global Group), as certain groups were out to court public opinion for political gains.

Thus, Felda is often put in a tight spot whereby truths, half truths and misinformation were fed to the settlers and the public.

In the past, the Felda Global Group, given its “non-listed status”, had the privilege to run its businesses under close wrap. However, now when full disclosure is warranted, he said the group was prevented from sharing certain facts due to publicity restrictions and regulations imposed by the authorities prior to the listing of FGVH.

Felda's traditional businesses such the production of crude palm oil and rubber manufacturing are vested in companies under Felda Holdings while Felda's global interests and its newer foray such as sugar refining are parked directly under FGVH.

Felda also has a unique land ownership structure which determines where profits are captured. Most plantation companies own their landbank but in Felda's case, settlers own the majority 500,000ha.

The source said: “The produce from these are sold to Felda Global Group's mills and this is how settlers derive their main source of income.”

However, Felda Plantations Sdn Bhd, a Felda Holdings subsidiary, also manages 360,000ha of mainly palm oil estates belonging to Felda.

The source explained that profits from these land were returned to Felda and only a fraction was reflected in Felda Holdings as management fee, with the bulk of Felda Holdings' profit derived from its other businesses.

“Therefore, in the land ownership and profit accounting, lies the cause of erroneous assumptions on the merits of Felda's plantation operations,” he explained.

At one point, Felda's performance was questioned for not being able to perform on par with other plantation companies.

But here's the crunch. The source said the comparison was based on Felda Holdings's profit in 2010 of RM760mil and Felda's “total” landbank of 850,000ha compared with Sime Darby Bhd's RM2.1bil and 650,000ha landbank.

For a fact, any comparison on Felda's plantation performance should rightly be based on RM1.4bil, which is the profit returned to Felda from plantation activities at 360,000ha in which Felda actually owns and manages. Many other “so called truths” are also aplenty.

On FGVH being a loss-making outfit, the source said FGVH had in fact posted RM366mil profits in 2010, higher than RM203mil registered in 2009, which is its first full year of operation.

To the potential investors of FGVH, all will be revealed in the prospectus to be issued in the very near term.

Among others, it will show a simpler business model whereby Felda will no longer directly own the business but FGVH instead will become the ultimate business entity, going forward.

Therefore, whether it is a successful IPO or even Election, FGVH listing would enable the investment community to get full access to the new listed entity's track record and its sprawling businesses.

With over one million people depending on Felda for their livelihood, FGVH's post-listing is touted to be one of the biggest companies by market capitalisation on Bursa Malaysia and this surely cannot be a bad thing after all.

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